Offering Memorandum - Adlermode Unternehmen

Offering Memorandum

for the public offering of

2,650,000 no-par value ordinary bearer sharesoriginating from a capital increase against cash contributions still to be resolved by the Company’s

Annual General Meeting

and of

7,463,000 no-par value ordinary bearer sharesfrom the holdings of the Selling Shareholder

and of

1,516,950 no-par value ordinary bearer sharesfrom the holdings of the Selling Shareholder for purposes of a potential Over-allotment

and

for admission to the regulated market (regulierter Markt) and the regulated market sub-segment with additional post-admission listing obligations (Prime Standard)

of the Frankfurt Stock Exchange of18,510,000 no-par value ordinary bearer shares

– each such share representing a notional interest in the share capital of c1.00and carrying full dividend rights from 1 January 2011 –

of

Adler Modemarkte AG

Haibach

International Securities Identification Number (ISIN): DE000A1H8MU2German Securities Identification Number (WKN): A1H8MU

Common Code: 061180117

Global Co-ordinator and Bookrunner

Credit Agricole CIB

27 May 2011

ABOUT THIS OFFERING MEMORANDUM

The up to 11,629,950 offered shares (the ‘‘Offered Shares’’) of Adler Modemarkte AG, a stockcorporation organized under the laws of the Federal Republic of Germany, will only be publiclyoffered in Germany based on the German language Wertpapierprospekt as approved by theGerman Federal Financial Supervisory Authority (Bundesanstalt fur Finanzdienstleistungsaufsicht –BaFin) on 27 May 2011 (the ‘‘German Prospectus’’). This Offering Memorandum has not beenfiled with, approved by or notified to any authority. It is a free translation of the GermanProspectus and is provided solely for the convenience of English speaking readers. All possiblecare has been taken to ensure that this translation is an accurate presentation of the GermanProspectus.

However, in the event of any inconsistency between the German Prospectus and this translationthereof, the German Prospectus shall take precedence and is solely legally binding.

This Offering Memorandum does not constitute or form part of an offer to sell, or a solicitation ofan offer to buy these securities, in the United States, Canada, Japan, Australia or any otherjurisdiction where such offer, sale or solicitation is not permitted. The securities referred to hereinhave not been and will not be registered under the U.S. Securities Act of 1933, as amended (the‘‘Securities Act’’), and may not be offered or sold in the United States absent registration underthe Securities Act or an available exemption from registration. The Offered Shares have not beenand will not be registered under the U.S. Securities Act.

No public offering of the securities referred to herein will be made in the United States, nor in anycountry other than the Federal Republic of Germany. Neither this Offering Memorandum nor anycopy of it may be taken or transmitted into the United States, Canada, Japan or Australia ordistributed or redistributed, directly or indirectly, in the United States, Canada, Japan or Australia.

TABLE OF CONTENTS

TABLE OF CONTENTS ........................................................................................................... ii

SUMMARY OF THE OFFERING MEMORANDUM .................................................................. 1General information about Adler and its business .................................................................... 1

Summary of the Offering ........................................................................................................... 3Summary of material financial information ................................................................................ 8

Background to the financial information contained in the Offering Memorandum and factorsaffecting its comparability .......................................................................................................... 12

Summary of Risk Factors.......................................................................................................... 14

RISK FACTORS ....................................................................................................................... 16Risks associated with the business – market and industry-related risks .................................. 16

Risks associated with the business – Company-related risks................................................... 17Legal and tax risks .................................................................................................................... 23Risks in connection with the Offering ........................................................................................ 26

GENERAL INFORMATION ...................................................................................................... 28

Responsibility for the content of the Offering Memorandum ..................................................... 28Documents on display ............................................................................................................... 28Statutory auditor ........................................................................................................................ 28

Forward-looking statements ...................................................................................................... 28Industry, market and customer data and information from third parties.................................... 29

Note regarding currency and financial information .................................................................... 31

THE OFFERING ....................................................................................................................... 32

Subject matter of the Offering Memorandum ............................................................................ 32Price range, Offering Period, Offer Price and number of allotted shares ................................. 32

Premature termination of the Offering ....................................................................................... 33Projected timetable for the Offering .......................................................................................... 34

Information concerning the shares ............................................................................................ 34Underwriting .............................................................................................................................. 35Allotment ................................................................................................................................... 38

Stabilisation measures, Over-allotment and Greenshoe Option ............................................... 38Stock exchange admission and commencement of trading ...................................................... 39

Designated Sponsor .................................................................................................................. 39Selling agent.............................................................................................................................. 39Selling Shareholder ................................................................................................................... 39

Lock-up...................................................................................................................................... 39Paying and registration agent.................................................................................................... 40

REASONS FOR THE OFFERING, USE OF PROCEEDS, ISSUE COSTS AND INTERESTEDTHIRD PARTIES....................................................................................................................... 41Issue proceeds and costs ......................................................................................................... 41

Reasons for the Offering and use of proceeds ......................................................................... 41Interested parties....................................................................................................................... 42

EARNINGS AND DIVIDENDS PER SHARE; DIVIDEND POLICY .......................................... 43

DILUTION ................................................................................................................................. 45

CAPITALISATION, INDEBTEDNESS AND BORROWING REQUIREMENTS........................ 46Capitalisation and indebtedness................................................................................................ 46

Borrowing requirements ............................................................................................................ 48Working capital statement ......................................................................................................... 48

SELECTED FINANCIAL INFORMATION................................................................................. 49

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS................................................................................................... 53Overview of business ................................................................................................................ 53Group of consolidated companies ............................................................................................. 54

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Background to the financial information contained in the Offering Memorandum and factorsaffecting its comparability .......................................................................................................... 55Significant factors affecting the financial condition and results of operations ........................... 56Significant accounting policies................................................................................................... 60Adler’s results of operations in financial years 2008, 2009 and 2010, and in the first quarter offinancial year 2010 and 2011 (IFRS) ........................................................................................ 63Adler’s net assets as at 31 December 2008, 31 December 2009, 31 December 2010 and 31March 2011 (IFRS).................................................................................................................... 84Adler’s financial position in financial years 2008, 2009 and 2010, and in the first quarter offinancial year 2010 and 2011 (IFRS) ........................................................................................ 92Development of the Company’s net assets, financial position and results of operations infinancial years 2008, 2009 and 2010 (HGB) ............................................................................. 95

MARKET AND INDUSTRY OVERVIEW .................................................................................. 96Introduction and overview ......................................................................................................... 96The clothing market................................................................................................................... 97Market trends ............................................................................................................................ 98

REGULATORY ENVIRONMENT .............................................................................................. 101Customs law.............................................................................................................................. 101Legal requirements for bringing products on to the market ...................................................... 101Consumer protection ................................................................................................................. 101

BUSINESS ................................................................................................................................ 103Introduction and overview ......................................................................................................... 103History of Adler.......................................................................................................................... 103Competitive strengths................................................................................................................ 104Strategy ..................................................................................................................................... 107Products .................................................................................................................................... 111Competitors and competitive position ....................................................................................... 114Trademarks, utility patents and domains, and licences to proprietary rights ............................ 114Sales ......................................................................................................................................... 116Marketing................................................................................................................................... 117Property holdings, operating facilities, property, plant and equipment ...................................... 118Material agreements.................................................................................................................. 118Insurance................................................................................................................................... 119Investments ............................................................................................................................... 119Sustainability and the environment ........................................................................................... 120Litigation .................................................................................................................................... 120

GENERAL INFORMATION ABOUT THE COMPANY ............................................................. 122Formation, commercial register entry, company name and registered office............................ 122Company object ........................................................................................................................ 122Financial year and term of the Company .................................................................................. 122Group structure and affiliates .................................................................................................... 122Notices ...................................................................................................................................... 125

INFORMATION ON THE CAPITAL OF THE COMPANY AND OTHER IMPORTANTPROVISIONS OF THE ARTICLES OF ASSOCIATION........................................................... 126Share capital and shares .......................................................................................................... 126Development of the share capital.............................................................................................. 126General provisions on capital increases.................................................................................... 127Authorised capital ...................................................................................................................... 127Contingent capital and authorisation to issue warrant-linked and/or convertible bonds ............ 128Authorisation to acquire treasury shares................................................................................... 130Shareholding notification requirements, takeover offers and exclusion of minority shareholders(squeeze-out) ............................................................................................................................ 131

CORPORATE BODIES OF THE COMPANY AND EMPLOYEES........................................... 134Overview ................................................................................................................................... 134Executive Board ........................................................................................................................ 135Supervisory Board ..................................................................................................................... 139

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Annual General Meeting............................................................................................................ 148Corporate Governance .............................................................................................................. 150Management participation ......................................................................................................... 151Employees................................................................................................................................. 151

SHAREHOLDER STRUCTURE (BEFORE AND AFTER THE OFFERING)............................ 153Overview ................................................................................................................................... 153Information on the shareholders................................................................................................ 153

RELATED PARTY TRANSACTIONS....................................................................................... 154

TAXATION IN THE FEDERAL REPUBLIC OF GERMANY .................................................... 158Taxation of the Company .......................................................................................................... 158Taxation of the shareholders..................................................................................................... 159

FINANCIAL SECTION .............................................................................................................. F-1Unaudited consolidated interim financial statements of Adler Modemarkte AG as at 31 March2011 (IFRS)............................................................................................................................... F-2Audited consolidated financial statements of Adler Modemarkte GmbH as at 31 December2010 (IFRS)............................................................................................................................... F-14Audited consolidated financial statements of Adler Modemarkte GmbH as at 31 December2009 (IFRS)............................................................................................................................... F-69Audited annual financial statements of Adler Modemarkte GmbH as at 31 December 2010(HGB) ........................................................................................................................................ F-119Audited annual financial statements of Adler Modermarkte GmbH as at 31 December 2008(HGB) ........................................................................................................................................ F-132

GLOSSARY .............................................................................................................................. G-1

RECENT DEVELOPMENTS AND OUTLOOK ......................................................................... A-1

SIGNATURES ........................................................................................................................... U-1

This Offering Memorandum contains cross-references to other sections. In each case, the cross-references refer to the respective headings listed in the above Table of Contents in which therelevant information can be found.

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SUMMARY OF THE OFFERING MEMORANDUM

The following summary is intended only as an introduction to this securities prospectus (the‘‘Offering Memorandum’’). As the information is significantly more detailed in other sections of thisOffering Memorandum, investors should base their investment decision on an examination of theOffering Memorandum in its entirety.

Adler Modemarkte AG, Haibach (the ‘‘Company’’ or ‘‘Adler Modemarkte AG’’ and together with itsconsolidated subsidiaries collectively referred to as ‘‘Adler’’ or the ‘‘Adler Group’’) as well asCREDIT AGRICOLE CORPORATE AND INVESTMENT BANK, Paris (‘‘Credit Agricole CIB’’ alsoreferred to as the ‘‘Global Co-ordinator’’ or ‘‘Bookrunner’’), assume responsibility for thissummary pursuant to § 5 (2) sentence 3 No. 4 German Securities Prospectus Act(Wertpapierprospektgesetz, ‘‘WpPG’’) and may be held liable for it, however only if the summaryproves to be misleading, inaccurate or contradictory when read in conjunction with other parts ofthe Offering Memorandum.

In the event claims are asserted before a court of law based on information contained in thisOffering Memorandum, the investor appearing as plaintiff may be required to bear the costs oftranslating the Offering Memorandum prior to the commencement of legal proceedings incompliance with the national laws of the individual Member States of the European Economic Area.

General information about Adler and its business

Introduction and overview

As one of the leading textile retailers in Germany, Austria and Luxembourg, and with more than 60years of tradition and a high level of customer loyalty, Adler is, in its own estimation, the marketleader among textile retailers for customers over 45 in Germany in the value price segment. Adleroffers a both broad and extensive range of womenswear, menswear and lingerie. With asupplementary range consisting of accessories, footwear, kidswear and babywear, traditional dress,sportswear and hardware products, Adler aims to round off its product portfolio and to exploitexisting cross-selling potential in its stores. Adler is currently focusing on large-space retailconcepts, i.e., the space occupied by the stores it operates is usually more than 1000 m2. Adler’sproduct portfolio consists mainly of own brands, the collections for which are designed andcompiled to a large extent by Adler itself, and then produced by external manufacturers. This issupplemented by a selected range of external brands. The products are distributed via a broadnetwork of currently 139 stores in Germany, Austria and Luxembourg, as well as an online store.

Competitive strengths

In terms of fit, fashion grade, functionality and quality, Adler’s product range is primarily tailored tothe generation of over 45s, whose share of the population will continue to grow. Adler has alsosuccessfully positioned itself as a value-for-money supplier, offering high-quality products at anattractive price-performance ratio. In addition, Adler has a vertically integrated business model withfull information control over all elements of the value chain, and can therefore respond efficiently tochanges in demand. Adler has also implemented a variable, modular retail space concept and cantherefore react flexibly to the offering of store spaces and occupy location-specific market niches.Adler has been awarded several prizes for customer satisfaction and has an established customerloyalty card programme that has been rated in tests as particularly good. It also enjoysdisproportionate awareness of its brand name and a very high level of customer loyalty.

Strategy

Adler intends to continue with its assortment policy and to continue to gear its communicationstrategy and the layout of its stores to customers over 45. It will also increasingly focus on winningas new customers those that are moving into the ever-growing age group of customers over 45. Inthis way, Adler aims to further expand what it sees as its leading position in the primary segment itserves. Adler has already successfully implemented this strategy in some stores and has attractedan increasing number of new customers through the offering of selected external brands such ass.Oliver, Tom Tailor, Street One, Cecil, OneTouch and Mexx, as well as more stringent visualmerchandising, i.e. via visual measures as part of merchandising, and extensive modernisation ofthe shop fronts and interior design of its stores. Adler plans to continuously expand this concept tofurther stores. In addition, Adler intends to expand its store network both organically andinorganically, in order to exploit economies of scale and broaden its market position. As part of itsorganic growth, Adler aims to open 20-35 new stores each year between 2011 and 2013 in

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Germany and Austria depending on the market situation and the market environment, although itwould also like to selectively use opportunities that arise due to the withdrawal of department storechains and small- and medium-sized retailers. In the medium term, Adler is also consideringinternational expansion into bordering countries of Germany and Austria with a similar age structureand physiognomy of the population. In future, Adler would also like to achieve cost benefits, on theone hand, and further optimise internal processes, on the other, through the use of innovativetechnologies. For example, Adler is presently in the testing stage of the Group-wide introduction ofRFID (radio-frequency identification), an electronic goods tracking and tagging system. By settingup an online shop in 2010, Adler also implemented a multi-channel sales strategy that aims toattract in particular new customers entering the over 45 age group, as well as older, less mobilecustomers.

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Summary of the Offering

Offering......................................... The Offering consists of a public offering in the Federal Republicof Germany and private placements in certain other Europeanjurisdictions outside the Federal Republic of Germany andoutside the United States of America.

Outside the United States of America, the Offered Shares will beoffered in the context of a placement under Regulation S of theUS Securities Act of 1933, as amended (the ‘‘Securities Act’’).

Offered Shares............................. The subject matter of this Offering Memorandum, including anypotential over-allotment, (the ‘‘Offering’’) relates to 11,629,950no-par value ordinary bearer shares of the Company, eachrepresenting a notional interest in the share capital of c1.00 andcarrying full dividend rights from 1 January 2011, consisting of

* 2,650,000 shares originating from a capital increase againstcash contributions of c2,650,000.00 still to be resolved bythe Company’s Annual General Meeting and excluding theSelling Shareholder’s pre-emptive subscription rights (the‘‘New Shares’’);

* 7,463,000 shares from the holdings of the SellingShareholder (the ‘‘Existing Shares’’); and

* 1,516,950 shares from the holdings of the SellingShareholder for purposes of any potential over-allotment(the ‘‘Greenshoe Shares’’, and together with the ExistingShares and the New Shares collectively referred to as the‘‘Offered Shares’’).

The Company and the Selling Shareholder, in consultation withthe Global Co-ordinator, reserve the right to reduce the number ofOffered Shares or to allot investors fewer than the total number ofOffered Shares.

Offering Period ............................ The Offering, during which investors will be given the opportunityto submit orders for the shares, is expected to begin on 30 May2011 and end on 14 June 2011. On the final day of the OfferingPeriod, retail investors should be able to submit orders until 12.00noon (CEST) and institutional investors until 5.00 p.m. (CEST).

The Company and the Selling Shareholder, in consultation withthe Global Co-ordinator, reserve the right to extend or shorten theOffering Period.

Subscription terms...................... Orders must be submitted for a minimum of one share and maystipulate a price limit within the price range, which is denominatedin round euro amounts or round euro cent figures of 25, 50 or 75cents. Up to two orders may be submitted per securities accountof any retail investor.

Selling Shareholder..................... Before the Offering, the Company’s sole shareholder is ChevernyInvestments Limited, Malta (the ‘‘Selling Shareholder’’). TheSelling Shareholder will hold all the shares of the Company untilsuch time as this Offering is implemented and the capital increaseagainst cash contributions still to be resolved by the Company’sAnnual General Meeting has been entered into the commercialregister.

Global Co-ordinator andBookrunner ..................................

Credit Agricole CIB is the Global Co-ordinator and theBookrunner.

Designated Sponsors.................. Designated Sponsors are Credit Agricole Cheuvreux S.A., 9, quaidu President Paul Doumer, 92400 Courbevoie, France (‘‘CACheuvreux’’), and, from the fourth day of trading after publicationof the termination of any stabilisation measures, or at the latestafter the expiration of the Offering Period of 30 days, DZ BANK

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AG, Deutsche Zentral-Genossenschaftsbank, Platz der Republik,60265 Frankfurt am Main (‘‘DZ BANK’’ and together withCA Cheuvreux, the ‘‘Designated Sponsors’’).

Selling Agent ............................... Selling Agent is Viscardi AG, Brienner Strasse 1, 80333 Munich(‘‘Viscardi’’ oder ‘‘Selling Agent’’).

Price range................................... The price range within which orders may be placed is

e10.00 to e12.50

per share.

The Company and the Selling Shareholder, in consultation withthe Global Co-ordinator, reserve the right to increase or reducethe upper and/or lower limit of the price range.

Offer Price .................................... After the Offering Period expires, the Company, the SellingShareholder and the Global Co-ordinator will use the order bookcreated in the book-building process to jointly set the Offer Priceper Offered Share (the ‘‘Offer Price’’). The Offer Price isscheduled to be published in an ad hoc disclosure on anelectronic information system and on the Company’s website(www.adlermode.com) and on the third business day followingexpiry of the Offering Period in a notice published in the Borsen-Zeitung.

Particularly in the event that the placement volume provesinsufficient to satisfy all the orders submitted at the Offer Price,the Global Co-ordinator, in consultation with the Company,reserves the right not to accept orders, either in whole or in part.

Changes to the Offer Terms ...... If the option to reduce the number of Offered Shares or modify theprice range and/or the Offering Period (collectively referred to asthe ‘‘Offer Terms’’) is exercised and to the extent required underthe German Securities Prospectus Act(Wertpapierprospektgesetz, ‘‘WpPG’’), a supplement to thisOffering Memorandum will be filed with the German FederalFinancial Supervisory Authority (Bundesanstalt furFinanzdienstleistungsaufsicht, ‘‘BaFin’’) and published followingapproval thereof. The change will also be published on anelectronic information system and, to the extent required by theGerman Securities Trading Act (Wertpapierhandelsgesetz,‘‘WpHG’’), in an ad hoc disclosure. Investors will not be notifiedindividually.

The allotment of fewer than the total number of Offered Shares toinvestors shall not constitute a change to the Offer Terms and assuch shall not trigger any duty to publish a supplement to thisOffering Memorandum.

Changes to the Offer Terms will not operate to invalidate ordersthat have already been submitted. Investors who have alreadysubmitted orders prior to the publication of any supplement areentitled under the German Securities Prospectus Act to revoketheir orders within two business days of the supplement’spublication.

Delivery and settlement .............. Delivery of the Offered Shares against payment of the Offer Priceand the customary securities commissions is expected to takeplace on the second banking day after listing commences.

Stabilisation, Over-allotmentand Greenshoe Option ...............

In connection with the placement of the Company’s shares and tothe extent permitted by law (§ 20a (3) WpHG in conjunction withEU Commission Regulation 2273/2003 dated 22 December2003), Credit Agricole CIB, as Stabilisation Manager, may makeover-allotments and execute measures aimed at supporting the

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stock exchange or market price of the Company’s shares.Stabilisation measures may be taken from the date theCompany’s shares list for trading and must be completed nolater than 30 calendar days after such date.

With regard to potential stabilisation measures and to the extentpermitted by law, in addition to orders for a total of 10,113,000New and Existing Shares of the Company being offered, ordersmay be executed with investors for up to 1,516,950 additionalshares of the Company (a maximum of 15% of the total NewShares and Existing Shares being offered) (‘‘Over-allotment’’). Inorder to cover these Over-allotments, the Selling Shareholder willprovide Credit Agricole CIB prior to allotment up to 1,516,950shares (up to 15% of the maximum total of New Shares andExisting Shares being offered) by way of a securities loan withoutcharge.

In this context, the Selling Shareholder will grant Credit AgricoleCIB an option to purchase up to 1,516,950 shares of theCompany (up to 15% of the maximum total of New Shares andExisting Shares being offered) from the Selling Shareholder at theOffer Price less agreed commission (‘‘Greenshoe Option’’), thussatisfying the retransfer obligation under the securities loan. ThisGreenshoe Option expires 30 calendar days after trading in theCompany’s shares commences and may only be exercised to theextent that the Company’s shares have been placed by way ofOver-allotment.

General allotment criteria ........... The Company, the Selling Shareholder and the Global Co-ordinator will comply with the ‘‘Principles for the allotment of shareissues to private investors’’ (Grundsatze fur die Zuteilung vonAktienemissionen an Privatanleger) issued on 7 June 2000 by theExchange Expert Commission (Borsensachverstandigen-kommission) at the German Federal Ministry of Finance(Bundesministerium der Finanzen).

Preferential allotment.................. Members of the Executive Board will be offered 75,000 of the totalof 11,629,950 Offered Shares. The Offered Shares subscribed bythose persons eligible under this plan will be allotted to them on apreferential basis. Otherwise, there are no provisions for anypreferential allotment of the Offered Shares to any other specificclass of persons.

Stock exchange admission/listing ............................................

All the Company’s shares, including the New Shares originatingfrom the capital increase against cash contributions still to beresolved by the Company’s Annual General Meeting areexpected to be admitted to trading on the regulated market(regulierter Markt) and the regulated market sub-segment withadditional post-admission listing obligations (Prime Standard) ofthe Frankfurt Stock Exchange on the first business day followingexpiry of the Offering Period, at the earliest. All the Company’sshares are scheduled to commence listing on the secondexchange trading day following expiry of the Offering Period.

Lock-up/Selling restrictions ....... In the Underwriting Agreement entered into with the SellingShareholder and the Global Co-ordinator on 27 May 2011 (the‘‘Underwriting Agreement’’), the Company has, inter alia,undertaken that, for a period of twelve months fromcommencement of trading in the Company’s shares, it will not,without the prior written consent of the Global Co-ordinator:

* directly or indirectly issue, sell or offer shares of theCompany originating from any capital increase or held inTreasury, nor enter into any obligation to sell or otherwisedispose of same or announce any offer in relation thereto.

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Excepted herefrom are those shares issued underemployee or management stock option plans described inthis Offering Memorandum;

* directly or indirectly issue, sell or offer any securities oruncertificated rights convertible into shares of the Companyor representing a right to acquire shares of the Company,nor enter into any obligation to sell or otherwise dispose ofsame or announce any offer in relation thereto;

* announce or implement any capital increase fromauthorised capital;

* propose any capital increase to its Annual General Meetingfor resolution; or

* enter into any transactions (including transactions inderivatives) which constitute the economic equivalent ofthe aforementioned measures.

In the Underwriting Agreement, the Selling Shareholder hasundertaken vis-a-vis the Global Co-ordinator that it will not (a)initiate or consent to the aforementioned measures of theCompany, nor (b) for a period of twelve months followingcommencement of trading in the Company’s shares (i) directlyor indirectly sell, offer or market any shares or other securities oruncertificated rights convertible into or exchangeable for sharesof the Company or representing a right to acquire shares of theCompany, nor enter into any obligation to sell or otherwisedispose of same or announce any offer in relation thereto; (ii)propose any capital increase to the Annual General Meeting norconsent to or support any such proposal; or (iii) enter into anytransactions (including transactions in derivatives) constitutingthe economic equivalent of the transactions set out in (i) and (ii)above, without the prior written consent of the Global Co-ordinator.

Use of proceeds .......................... The Company plans to use the net issue proceeds accruing to itprimarily for the following projects presented here in the order oftheir priority.

1. To a large extent, financing further growth:

a) internal growth through the opening of new stores

b) external growth through the purchase of competitorsand existing store chains;

2. as well as expanding the ‘‘shop-in-shop’’ concept to includeexternal brands; and

3. to a lesser extent, financing the programme for modernisingexisting Adler stores.

Premature termination of theOffering.........................................

In the Underwriting Agreement with the Company (the‘‘Underwriting Agreement‘‘), the Global Co-ordinator hasreserved the right to terminate the Underwriting Agreement anddiscontinue the Offering.

International SecuritiesIdentification Number (ISIN)....... DE000A1H8MU2

German SecuritiesIdentification Number (WKN) .....

A1H8MU

Common Code ............................. 061180117

Ticker symbol .............................. ADD

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Further information about the Company and Adler

Executive Board .......................... Lothar Schafer (CEO)Jochen StrackThomas Wanke

Supervisory Board ...................... Holger Kowarsch (Chairman)Angelika Zinner (Deputy Chairman)*Mona Abu-NusseiraMajed Abu-Zarur*Ingrid Dusmann-Schulz*Corinna Groß*Georg Linder*Eduard RegeleErika Ritter*Markus RoschelMarkus StillgerJorg Ulmschneider* Employee representative

Share capital and shares(before the Offering) ..................

The Company’s share capital is currently c15,860,000 and isdivided into 15,860,000 no-par value ordinary bearer sharesrepresenting a notional interest in the share capital of c1.00 perno-par share. Each share carries one vote at the Annual GeneralMeeting.

Statutory auditor ......................... PricewaterhouseCoopers AktiengesellschaftWirtschaftsprufungsgesellschaft, Stuttgart.

Employees.................................... Adler had a total of 4,174 employees on average (traineesincluded) in the 2010 financial year.

Other ............................................. Parties related to the Company have and have had variousbusiness and legal relationships with companies in the AdlerGroup.

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Summary of material financial information

The consolidated financial statements were prepared in accordance with the accountingrequirements of the International Accounting Standards Board (IASB) – International FinancialReporting Standards (‘‘IFRS’’), as adopted by the EU – using the nature of expense method andcontain the audited financial information in accordance with IFRS for the respective financial yearand corresponding comparative figures for the previous financial year. The Adler Group’sconsolidated financial statements and consolidated interim financial statements will continue to beprepared in accordance with IFRS in the future.

Unless otherwise indicated, the financial information in this Offering Memorandum has beenextracted or derived from the audited consolidated financial statements of the Company inaccordance with IFRS as at 31 December 2010 (the ‘‘2010 IFRS Consolidated FinancialStatements’’), the audited consolidated financial statements of the Company in accordance withIFRS as at 31 December 2009 (the ‘‘2009 IFRS Consolidated Financial Statements’’ andtogether with the 2010 IFRS Consolidated Financial Statements the ‘‘IFRS Consolidated FinancialStatements’’) or the unaudited consolidated interim financial statements of the Company inaccordance with IFRS as at 31 March 2011 (the ‘‘2011 IFRS Consolidated Interim FinancialStatements’’). The financial information presented in the tables below represents a selection of thefinancial information for the Adler Group contained in the financial statements and is quoted inthousands of euros (‘‘e thousands’’) and rounded to whole numbers in accordance with normalcommercial practice in order to improve readability. Figures quoted as a percentage have beenrounded to one decimal place in accordance with normal commercial practice. Due to the rounding,the figures presented in the tables do not always add up exactly to the particular total amountgiven.

Financial information that has been designated in this Offering Memorandum as unaudited has notbeen audited or reviewed by an auditor (pruferische Durchsicht) within the meaning of § 20.6 ofAppendix I to Commission Regulation (EC) No. 809/2004.

The consolidated financial information and business information presented represent a summary ofthe financial information contained in this Offering Memorandum. Investors should base theirinvestment decisions on an examination of the Offering Memorandum as a whole.

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Selected information relating to the consolidated income statement

Financial year 3 months as at 31 March

2008* 2009* 2010* 2010 2011

c’000

(audited)

in % of

revenue

(unaudited)

c’000

(audited)

in % of

revenue

(unaudited)

c’000

(audited)

in % of

revenue

(unaudited)

c’000

(unaudited)

in % of

revenue

(unaudited)

c’000

(unaudited)

in % of

revenue

(unaudited)

Revenue ............................................... 474,603 405,846 444,809 84,249 91,906

Other operating income......................... 23,404 4.9 17,709 4.4 8,172 1.8 2,240 2.7 2,601 2.8

Cost of materials .................................. -239,602 -50.5 -205,277 -50.6 -210,360 -47.3 -43,790 -52.0 -47,321 -51.5

Personnel expenses ............................. -128,173 -27.0 -80,553 -19.8 -74,996 -16.9 -17,778 -21.1 -19,286 -21.0

Other operating expenses..................... -157,412 -33.2 -125,251 -30.9 -129,776 -29.2 -32,321 -38.4 -34,502 -37.5

EBITDA** ............................................. -27,180 -5.7 12,474 3.1 37,849 8.5 -7,400 -8.8 -6,602 -7.2

Depreciation and amortisation............... -20,379 -4.3 -15,521 -3.8 -13,565 -3.0 -3,596 -4.3 -3,360 -3.7

Impairment ............................................ -7,852 -1.7 -2,322 -0.6 — — — — — —

EBIT** ................................................... -55,411 -11.7 -5,369 -1.3 24,284 5.5 -10,996 -13.1 -9,962 -10.8

Other interest and similar income 786 1,919 3,538 773 20

Interest and similar expenses ............... -6,977 -5,022 -4,121 -1,099 -914

Net finance costs ................................ -6,191 -3,103 -583 -326 -894

Profit/loss from operations ............... -61,602 -8,472 23,701 -11,322 -10,856

Income taxes......................................... 2,357 -149 4,778 67 2,006

Profit/loss from continuing

operations ........................................ n.a. -8,621 28,479 -11,255 -8,850

Profit/loss from discontinued operations n.a. 1,343 -1,057 -1,059 —

Consolidated net profit (+)/

loss (-) for the year.......................... -59,245 -7,278 27,422 -12,314 -8,850

of which attributable to non-controlling

interests ............................................. — — — — —

of which attributable to equity holders of

Adler Modemarkte GmbH.................. -59,245 -7,278 27,422 -12,314 -8,850

Consolidated total comprehensive

income .............................................. -59,245 -7,278 27,422 -12,314 -8,850

* Unless marked as unaudited, the financial information for financial years 2009 and 2010 has been extracted from the 2010IFRS Consolidated Financial Statements. Unless marked as unaudited, the financial information for financial year 2008 hasbeen extracted from the 2009 IFRS Consolidated Financial Statements. The comparability of the financial informationpresented in this table for financial years 2008 and 2009 is limited. For further details, please see ‘‘Management’s Discussionand Analysis of Financial Condition and Results of Operations – Background to the financial information contained in theOffering Memorandum and factors affecting its comparability’’.

** The Company uses EBITDA and EBIT as performance indicators in its business operations and is of the opinion that these keyfigures could be used as performance indicators by investors. The Company defines EBITDA (earnings before interest, taxes,depreciation and amortisation) as EBIT before depreciation and amortisation and impairment charges. The Company definesEBIT (earnings before interest and taxes) in this context as the profit or loss from operations before net finance costs andtaxes. The figures for EBITDA and EBIT presented in this Offering Memorandum may not be comparable with the figures forEBITDA and EBIT reported by other companies since, in the absence of a generally accepted definition of these key figures,they may be calculated on the basis of different underlying variables.

9


The table below shows the development of EBITDA, EBIT and EBITDA adjusted for non-recurringitems in financial years 2008, 2009 and 2010 as well as in the first three months of financial years2010 and 2011:

Financial year3 months as at

31 March2008* 2009* 2010* 2010 2011

c’000(audited)

c’000(audited)

c’000(audited)

c’000(unaudited)

c’000(unaudited)

EBITDA** ............................................ -27,180 12,474 37,849 -7,400 -6,602EBITDA margin (in % of revenue)

(unaudited) ...................................... -5.7 3.1 8.5 -8.8 -7.2EBIT** .................................................. -55,411 -5,369 24,284 -10,996 -9,962EBIT margin (in % of revenue)

(unaudited) ...................................... -11.7 -1.3 5.5 -13.1 -10.8Adjusted EBITDA (unaudited)***....... -1,392 13,348 — — —Adjusted EBITDA margin (in % of

revenue) (unaudited) ....................... -0.3 3.3 — — —



*** Adjusted for non-recurring items: In financial year 2008 in particular non-recurring items relating to the restructuringprogramme were incurred which had a material effect on the results of the Company for that financial year. The non-recurringitems consisted of the costs of contract terminations resulting from the early termination of rental agreements for unprofitableAdler stores, personnel expenses for social compensation plans and termination benefits, and consultancy expenses forrestructuring advisers. The expenses were offset by income from the reversal of restructuring provisions recognised in the prioryear. Non-recurring items relating to the restructuring programme were also incurred in financial year 2009. They were muchlower than in the previous year, however. For example, only personnel-related restructuring expenses were incurred. Theexpenses were offset by income from the reversal of restructuring provisions recognised in the previous year. There were nomaterial non-recurring items in financial year 2010. An adjusted EBITDA has therefore not been presented for financial year2010. The detailed reconciliation of EBITDA for financial years 2008 and 2009 to the adjusted EBITDA for those financial yearswas as follows:

Financial yearEBITDA and adjusted EBITDA 2008* 2009*

(all figures are unaudited unless otherwise indicated) c’000 c’000

EBITDA reported in the income statement (audited) ........................................................ -27,180 12,474Costs of contract terminations.............................................................................................. +12,915 —Expenses for staff reductions............................................................................................... +11,132 +4,355Expenses for restructuring advice ........................................................................................ +1,854 —Income from the reversal of restructuring provisions ........................................................... -113 -3,481

Adjusted EBITDA................................................................................................................. -1,392 13,348

10


The table below shows the analysis of revenue (net) by geographical region for financial years2008, 2009 and 2010 and for the first three months of financial years 2010 and 2011:


Revenue 2008* 2009* 2010* 2010 2011

c’000

(audited)

in % of

revenue

(unaudited)

c’000

(audited)

in % of

revenue

(unaudited)

c’000

(audited)

in % of

revenue

(unaudited)

c’000

(unaudited)

in % of

revenue

(unaudited)

c’000

(unaudited)

in % of

revenue

(unaudited)

Germany.............................. 394,824 83.2 332,014 81.8 356,195 80.1 67,854 80.5 73,213 79.7

Austria ................................. 65,880 13.9 60,873 15.0 74,599 16.8 13,416 15.9 15,468 16.8

Luxembourg ........................ 13,899 2.9 12,959 3.2 14,015 3.1 2,979 3.5 3,224 3.5

Revenue ............................. 474,603 100.0 405,846 100.0 444,809 100.0 84,249 100.0 91,906 100.0


The table below shows the analysis of the figures for gross sales, which have been generated byor derived from Adler’s stock management system and are unaudited, by product group forfinancial years 2008, 2009 and 2010:


Sales 2008* 2009* 2010* 2010 2011

c’000

(unaudited)

in % of

gross sales

(unaudited)

c’000

(unaudited)

in % of

gross sales

(unaudited)

c’000

(unaudited)

in % of

gross sales

(unaudited)

c’000

(unaudited)

in % of

gross sales

(unaudited)

c’000

(unaudited)

in % of

gross sales

(unaudited)

Womenswear (unaudited) ... 290,909 51.7 246,432 50.6 260,805 48.8 54,546 52.0 57,567 50.3

Menswear (unaudited)......... 166,756 29.6 146,297 30.1 150,019 28.1 28,860 27.5 29,595 25.8

Lingerie (unaudited) ........... 55,536 9.9 48,846 10.0 54,118 10.1 10,422 9.9 11,539 10.1

Supplementary assortment

(unaudited).......... .......... 49,828 8.9 45,052 9.3 69,792 13.1 11,073 10.6 15,813 13.8

Gross sales (unaudited) ... 563,030 486,627 534,734 104,901 114,514

Reconciliation to net

revenue (unaudited)** .... -88,427 -80,781 -85,378 -20,652 -22,608

(Net) revenue.......... .......... 474,603*** 405,846*** 444,809*** 84,249 91,906

* Unless marked as unaudited, the audited financial information for financial years 2009 and 2010 has been extracted from the2010 IFRS Consolidated Financial Statements. Unless marked as unaudited, the audited financial information for financial year2008 has been extracted from the 2009 IFRS Consolidated Financial Statements. The comparability of the financialinformation presented in this table for financial years 2008 and 2009 is limited. For further details, please see ‘‘Management’sDiscussion and Analysis of Financial Condition and Results of Operations – Background to the financial information containedin the Offering Memorandum and factors affecting its comparability’’.

** The reconciliation to net revenue is unaudited and principally comprises VAT and discounts incurred on the sale of productsand sales deferred as a result of discount entitlements relating to the Adler customer card that were acquired or not utilised.

*** These figures have been extracted from the 2009 and 2010 IFRS Consolidated Financial Statements and verified.

11


Selected information relating to the consolidated balance sheet

31 December 31 March2008* 2009* 2010* 2011

c’000(audited)

c’000(audited)

c’000(audited)

c’000(unaudited)

ASSETSNon-current assets.............................................. 88,891 72,644 67,501 67,989Current assets..................................................... 101,033 132,325 95,214 101,252Total equity and liabilities .................................... 189,924 204,969 162,715 169,241

EQUITY AND LIABILITIESEquity .................................................................. 25,546 69,274 41,167 32,316Non-current liabilities........................................... 63,886 54,520 47,165 44,200Current liabilities.................................................. 100,492 81,175 74,383 92,725Total equity and liabilities................................ 189,924 204,969 162,715 169,241

* The comparability of the financial information presented in this table for financial years 2009 and 2010 is to some extent limited.For further details, please see ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations –Background to the financial information contained in the Offering Memorandum and factors affecting its comparability’’.

Selected information relating to the consolidated statement of cash flows

Financial year 3 months as at 31 March2008* 2009* 2010* 2010 2011

c’000(audited)

c’000(audited)

c’000(audited)

c’000(unaudited)

c’000(unaudited)

Net cash from (+)/used in (-)operating activities ..................... -22,523 7,192 25,800 -11,845 -13,640

Net cash from (+)/used in (-)investing activities...................... 4,033 -37,842 -16,759 -255 -1,987

Net cash from (+)/used in (-)financing activities ..................... 18,210 42,424 -13,076 -3,295 -3,427

Cash and cash equivalents atend of period ........................... 25,217 36,991 32,956 21,308 13,902


Additional selected information

The table below gives an overview of the number of Adler stores as at 31 December 2008,31 December 2009 and 31 December 2010 and 31 March 2011:

31 December 31 March2008 2009 2010 2011

Adler stores (unaudited)...................................... 120 123 135 137

Background to the financial information contained in the Offering Memorandum and factorsaffecting its comparability

The Company sold its shareholding in MOTEX, which provides transport and logistics services forthe Adler Group, with effect as at 30 September 2010. In consequence, a distinction is madebetween continuing operations and discontinued operations in the consolidated income statement inthe 2010 IFRS Consolidated Financial Statements and the 2011 IFRS Consolidated InterimFinancial Statements (including the comparative figures presented for financial year 2009 and thefirst quarter of financial year 2010). The profit or loss after tax of MOTEX for the first 9 and 3months of financial year 2010 and the net profit or loss of MOTEX for financial year 2009 and thenet profit or loss of MOTEX in the first quarter of 2010 are reported in each case as a separateitem in the consolidated income statement in the 2010 IFRS Consolidated Financial Statementsand the 2011 IFRS Consolidated Interim Financial Statements (including the comparative figurespresented for financial year 2009 and the first quarter of financial year 2010). The other items in

12


the consolidated income statement for financial year 2010 (including the comparative figurespresented for financial year 2009 and the first quarter of financial year 2010), on the other hand,reflect only the continuing operations.

In contrast, no distinction was made between continuing operations and discontinued operations inthe 2009 IFRS Consolidated Financial Statements (including the comparative figures presented forfinancial year 2008) as the decision to sell MOTEX had not yet been taken at the balance sheetdate 31 December 2009.

In order to improve the comparability of the development of Adler’s business in financial years2009 and 2010, the following discussion and analysis of the results of operations of Adler forfinancial years 2009 and 2010 is therefore based on the financial information contained in theconsolidated income statement in the 2010 IFRS Consolidated Financial Statements (including thecomparative figures presented for financial year 2009). Those financial statements distinguishbetween continuing operations and discontinued operations for both financial years.

In contrast, the financial information relating to Adler’s results of operations in financial year 2008,which is taken from the comparative figures for the prior year in the consolidated income statementin the 2009 IFRS Consolidated Financial Statements, does not distinguish between continuingoperations and discontinued operations.

The assets and liabilities of MOTEX are no longer included in the consolidated balance sheet as at31 December 2010 in the 2010 IFRS Consolidated Financial Statements as a result of its sale witheffect as at 30 September 2010. The cash flows of MOTEX up to the date of sale, including theproceeds of the sale of MOTEX and after deducting the cash funds disposed of in that connection,are included in the consolidated statement of cash flows in the 2010 IFRS Consolidated FinancialStatements. In contrast, the assets and liabilities and the cash flows of MOTEX are included in fullin the comparative figures for financial year 2009 presented in the consolidated balance sheet andthe consolidated statement of cash flows in the 2010 IFRS Consolidated Financial Statements, andalso in the consolidated balance sheet and the consolidated statement of cash flows in the 2009IFRS Consolidated Financial Statements (including the comparative figures presented for financialyear 2008).

The assets and liabilities of Adler Asset GmbH, Ansfelden / Austria (formerly: F.W. Woolworth Co.Gesellschaft m.b.H.), acquired on 31 December 2010, are included for the first time in theconsolidated balance sheet as at 31 December 2010 in the 2010 IFRS Consolidated FinancialStatements.

In the light of these considerations

* the comparability of the financial information in the following discussion and analysis of Adler’sresults for operations for financial years 2008 and 2009,

* the comparability of the financial information in the following discussion and analysis of Adler’snet assets for financial years 2009 and 2010 and

* the comparability of the financial information in the following discussion and analysis of Adler’sfinancial position for financial years 2009 and 2010

are to some extent limited. The revenues of the Adler Group for financial year 2009 including theactivities of MOTEX reported in the consolidated income statement in the 2009 IFRS ConsolidatedFinancial Statements therefore amount to c410,824 thousand, while the revenues of the AdlerGroup for financial year 2009 excluding the activities of MOTEX reported in the consolidatedincome statement in the 2010 IFRS Consolidated Financial Statements amount to c405,846thousand. The EBITDA of the Adler Group for financial year 2009 including the activities ofMOTEX reported in the consolidated income statement in the 2009 IFRS Consolidated FinancialStatements amounts to c14,652 thousand, while the EBITDA for financial year 2009 excluding theactivities of MOTEX reported in the consolidated income statement in the 2010 IFRS ConsolidatedFinancial Statements amounts to c12,474 thousand. The consolidated profit or loss after tax, onthe other hand, remains unchanged.

13


Summary of Risk Factors

Before deciding to purchase shares of Adler Modemarkte AG, investors should carefully read andconsider the risks factors summarised below. The occurrence of one or more of these risks, eitheron their own or in conjunction with other circumstances, could materially prejudice the business ofthe Adler Group and/or have a material adverse effect on its financial condition and results ofoperations and the Company’s continued existence. The quoted stock market price of theCompany’s shares could fall if any of these risks occurs, and investors could lose a portion, oreven all, of their investment.

Risks associated with the business – market and industry-related risks

* A weak or deteriorating economy, particularly in Germany, or a reduction in the amount ofincome available to Adler’s target group to spend on clothing for some other reason, couldnegatively affect demand for the Adler Group’s products and result in a corresponding declinein sales

* The Adler Group faces strong competition. If competition becomes more intense or newcompetitors enter the market, the Adler Group could lose market share, pricing pressure couldincrease significantly, and margins would be accordingly reduced.

* The Adler Group faces economic, political and other risks in overseas markets because itprocures a significant share of its stock from abroad.

Risks associated with the business – Company-related risks

* The Adler Group is dependent on the development of fashion trends each year and on themarket being receptive to its lines of clothing. The Adler Group may not be able to predictand seasonably respond to trends in the future.

* The Adler Group’s future growth will depend on its ability to maintain and successfully expandits market position and customer base.

* The Adler Group faces risks as a result of its ties to third-party service providers inconnection with stock procurement

* The Adler Group faces risks associated with disruptions to its stock management systems orto logistics services outsourced to an external logistics services provider.

* The Adler Group’s operations may be disrupted or interrupted.

* The Adler Group’s growth strategy could be unsuccessful or progress more slowly thanplanned. In particular, the Adler Group may be unable to continue to grow organically or takeover and successfully integrate other companies.

* The development of retail space is associated with considerable financial expense anduncertainty with regard to future profitability.

* Defective stock could adversely affect the market’s acceptance of the Adler Group’s productsand trigger damages claims against the Adler Group.

* The Adler Group’s liquidity could suffer significantly if a substantial portion or even alloutstanding discount entitlements are redeemed within a very short timeframe.

* The Adler Group’s business is subject to seasonal fluctuations and weather conditions.

* The public’s perception and the reputation of the Adler Group could be adversely affected ordamaged if the manufacturers of the products sold by the Adler Group fail to comply withemployment, social and recognised ethical or other standards.

* Unexpectedly high increases in the wages payable to employees covered by collectivebargaining agreements in the retail sector could have a material adverse effect on Adler’swage and salary structure.

* The Adler Group’s future success depends on executives and other qualified employees.

* The Adler Group may be unable to adequately upgrade its in-house organisational andreporting structures, risk monitoring and risk management systems and its financial accountingor adapt them to keep up with its rate of growth.

* The Adler Group’s existing insurance protection may be inadequate.

* The Adler Group faces risks from changes in interest rates, which could adversely affect theAdler Group’s results.

14


* The Adler Group faces risks associated with using external brands, which could adverselyaffect the Adler Group’s results.

Legal and tax risks

* The Adler Group faces risks in connection with Adler store leases.

* Stock procurement could become more difficult by virtue of existing or future importrestrictions on goods from the Adler Group’s supply markets.

* The legal relationship between the Adler Group and its customers is based on pro formaterms designed for incorporation in a large number of contracts. Individual errors in thedrafting of such terms could therefore affect numerous legal relationships.

* The Adler Group’s compliance system and monitoring capabilities may not be sufficient inorder to prevent legal infringements or to expose past infringements or to prevent damagefrom economic crime.

* The Adler Group may not be able to adequately protect its intellectual property.

* The Adler Group could infringe third-party intellectual property rights.

* The Adler Group faces competition law risks.

* The Adler Group could, for past periods, be required to make additional tax payments oradditional social security contributions, or face liabilities from commitments made under itscompany pension scheme, or be required to repay government grants.

Risks in connection with the Offering

* Future sales of shares of the Company or comparable transactions by the Selling Shareholdercould adversely affect the share price.

* The Selling Shareholder may continue to exercise significant influence over Adler ModemarkteAG and the interests of the Selling Shareholder could conflict with those of the rest of theshareholders.

* Future capital measures could lead to substantial dilution of the interests held by theshareholders in the Company.

* The Company’s Offer Price is expected to significantly exceed the proportional book value ofthe equity per share.

* No guarantee can be given that active or liquid trading in the Company’s shares will developand the share price could be volatile.

* The Offering may not take place.

15


RISK FACTORS

Potential investors should carefully read and consider the risk factors described below and theother information contained in this Offering Memorandum before making a decision on whether tobuy shares in Adler Modemarkte AG (the ‘‘Company’’ or ‘‘Adler Modemarkte AG’’, and togetherwith its subsidiaries ‘‘Adler’’ or the ‘‘Adler Group’’). The occurrence of one or more of these risks,either on their own or in conjunction with other circumstances, could materially prejudice thebusiness of the Adler Group and/or have a material adverse effect on its financial condition andresults of operations and the Company’s continued existence. The selected order in which the risksare listed is neither an indication of the likelihood of their occurrence, nor an indication of theseverity or significance of the individual risks. At the same time, the risk factors below are basedon assumptions which may subsequently prove to be incorrect. In addition, other risks and aspectswhich are presently unknown to the Company may be significant. The quoted market price of theshares could fall if any one of these risks occurs, and investors could lose a portion, or even all, oftheir investment.

Risks associated with the business – market and industry-related risks

A weak or deteriorating economy, particularly in Germany, or a reduction in the amount ofincome available to Adler’s target group to spend on clothing for some other reason, couldnegatively affect demand for the Adler Group’s products and result in a correspondingdecline in sales. The Adler Group’s performance and future growth are largely dependent on thegeneral demand trends demonstrated by its target group in the retail clothing trade. Demand trendsare of particular significance in the Adler Group’s home market Germany, where approximately80.1% of the Company’s sales were generated in the 2010 financial year, and also in its othersales markets Austria and Luxembourg. Demand is, in turn, largely dependent on the generaleconomic climate and associated consumer buying behaviour. Any phase of weak economicperformance in the Adler Group’s sales markets, or a reduction in the amount of income availableto Adler’s target group to spend on clothing for some other reason, therefore considerablyincreases the risk of a negative sales trend. This could result in greater pricing pressure on thestock sold by the Adler Group and, accordingly, reduce margins. Even though there was aneconomic upturn in 2010 after the financial and economic crisis of 2008 and 2009, particularly inGermany, the economic situation could deteriorate again, for example if the current political andmilitary unrest, particularly in Northern Africa, worsens, if the after-effects of the natural disaster inJapan become more severe, or if other political or economic crises or disasters, domestically orabroad, intensify, and consumers could cut their consumption accordingly, or keep theirconsumption low. The financial and economic crisis has created risks for global economicdevelopment and thus also for economic development in Germany, which, as an export nation, isparticularly dependent on global economic growth, but also for economic development in the AdlerGroup’s other sales markets. Any deterioration of the global economy again would affect theEuropean Union’s economic position and thus also the situation in Adler’s sales markets. Theoccurrence of one or more of the aforementioned risks could have a material adverse effect on theAdler Group’s financial condition and results of operations.

The Adler Group faces strong competition. If competition becomes more intense or newcompetitors enter the market, the Adler Group could lose market share, pricing pressurecould increase significantly, and margins would be accordingly reduced. In general there isconsiderable competition and associated pricing pressure in the clothing market. The existingcompetition is further intensified by virtue of continuing globalisation and could therefore have anegative impact on prices for the Adler Group’s products and thus on its sales and margins.Competition could also trigger a reallocation of market share. It is possible that the Adler Groupwill not be able to compete in this environment and will lose market share to its competitors. In thetextile market, customers are not necessarily loyal to a certain brand. However, customersdemonstrate stronger loyalty to certain clothing stores (source: GfK TextilNews Autumn 2008, p. 4).Pricing often plays a key role when customers choose which clothing stores to frequent regularly(source: GfK TextilNews Winter 2009, p. 4). The Adler Group’s competitors as retailers of, inparticular, classic and modern fashion for men and women over 45 years of age include C&A,Charles Vogele, K&L Ruppert and AWG in the value price segment, Karstadt, Kaufhof and GerryWeber in the upper mid-price range, and, in particular, Otto Versand and Klingel in the mail orderbusiness. There has been a noticeable expansion in budget clothing chains over the past fewyears. The extensive range of budget clothing on offer in the budget price range has resulted infierce price competition. Due to increased consumer awareness of social and ecological issues

16


(see also ‘‘The public’s perception and reputation of the Adler Group could be adversely affected ordamaged if the manufacturers of the products sold by the Adler Group fail to comply withemployment, social and recognised ethical or other standards’’) large discounters could also becompelled to relinquish, to a certain degree, their aggressive low-price policies in favour ofintroducing social and ecological standards. If the orientation of the discounter market changes, itis possible that some discounters will become direct competitors of Adler in the lower mid-pricesegment. In addition, large clothing and warehouse chains are often well known and have a strongpresence in the market, and therefore also have a large customer base and extensive financialresources. These companies can use these advantages to finance extensive marketing campaignsfor their products, and can pursue aggressive pricing policies because of their large sales volumes.In addition, large retailers of brand name clothing could become direct competitors in the AdlerGroup’s market and price segment by pursuing an aggressive pricing policy. This couldsubstantially increase pricing pressure, which may result in a loss of market share and lowermargins for the Adler Group. The clothing market in the Group’s home market Germany is growingonly very slowly, which means that in this environment of predatory competition, the main potentialfor expansion is to gain market share. The other markets in which the Adler Group does or coulddo business reveal similar trends, not least because of the expansion of the types of competitorsdescribed. If the Adler Group is unable to procure and market its products in this competitiveenvironment in accordance with the wishes of consumers, and at the same time remain highly costeffective, existing customers may go elsewhere. Price competition has also intensified because ofthe continually growing pricing pressure caused by imports from low-income countries, which hasfundamentally changed the structure of the German clothing market. This price competition couldhave a negative effect on the Adler Group’s margins and profitability. The Adler Group may not bein a position to withstand this competition. Even clothing chains which, having positionedthemselves differently in the market, do not currently compete directly with Adler, could berestructured in the future and become competitors of Adler by offering a new product range. Inaddition, new competitors could enter the market and gain market share at the Adler Group’sexpense. Adler is currently focussing on large-space retail concepts, i.e., the space occupied by itsstores is usually more than 1,000 m2. Other retailers could, in the future, increasingly look towardsrealising large-space retail concepts and therefore start to compete with Adler for retail space. Thismay mean that Adler is unable to expand its store network, or only at increased cost, and thatAdler’s growth will be slowed. Increased competition for large-space retail concepts could alsomean that Adler is unable to extend existing leases, or is only able to do so on less favourableconditions. The occurrence of one or more of the aforementioned risks could have a materialadverse effect on the Adler Group’s financial condition and results of operations.

The Adler Group faces economic, political and other risks in overseas markets because itprocures a significant share of its stock from abroad. The Adler Group procures a significantshare of its stock from Asia and also operates clothing stores outside Germany, albeit to a limitedextent. The Company’s growth strategy includes expanding its foreign operations. This alsoincludes potential expansion to countries outside the euro zone, particularly Switzerland.

Adler’s suppliers predominantly manufacture abroad, particularly in Asia. Adler co-operates withMetro Group Buying Ltd., Hong Kong (‘‘MGB’’), a subsidiary of the METRO Group, in order toprocure stock. The Adler Group faces a range of risks over which it has no real control, primarilybecause of the substantial volume of stock procured from abroad. Exchange controls and currencyfluctuations, for example if a country ceases to peg its currency to another currency, and otherrules governing foreign investment, could interfere with business dealings with foreignmanufacturing and trading partners and suppliers. Adler may not be able to successfully usecurrency hedges to wholly or partially hedge against risks arising from currency fluctuations. Therisks in the Company’s supply markets, particularly Asia, also include uncertain political, social,economic and legal situations. Trading restrictions, the enactment of import quotas for textiles andclothing, or an increase in customs duties or a tightening of customs regulations could significantlydisrupt imports from these countries. Other conditions relevant to foreign transactions andinvestments such as infrastructure, qualified employees and economic stability could deteriorate.The occurrence of one or more of these risks could be materially detrimental to the Adler Group’sfinancial condition and results of operations.

Risks associated with the business – Company-related risks

The Adler Group is dependent on the development of fashion trends each year and on themarket being receptive to its lines of clothing. The Adler Group may not be able to predict

17


and seasonably respond to trends in the future. The Adler Group’s clothing range is specificallytargeted at the over 45s. The Adler Group’s success depends on its ability to continually offerattractive fashion collections or new products that accord with the tastes and fit of its target group.This is a particular risk when expanding into new international markets. The specific risk associatedwith the Adler Group’s focus on this particular target group is whether it will be able to transformcurrent fashion trends, which are generally tailored to a younger clientele, into products that meetthe specific fitting requirements of the Adler Group’s customers and also match their tastes. To thisend, the Adler Group offers various lines of clothing, which are distinguished by the varyingdegrees to which they are geared towards current trends, a certain fit, or special wishes of thetarget group. There is a risk that one or more of these lines of clothing will not meet the needsand tastes of the target group and hence will not sell well. The financial and personal resourcesrequired to procure the lines of clothing could therefore be wholly or partially wasted. Unsold stockcould necessitate write-downs. The Adler Group’s success also depends on its ability toseasonably identify the changing wishes and demands of its customers and adapt its collectionsand lines of clothing to these changing trends at short notice. There is no guarantee that the AdlerGroup will always be able to do this, or do it to a sufficient extent. If it cannot, the Adler Group’sability to sell its stock may be limited and its product range may lose its appeal. Unsuccessfulcollections or lines of clothing could lead to significantly lower sales figures and margins, and couldalso have a negative impact on demand for subsequent collections. This could substantially impairthe Adler Group’s competitive position, growth opportunities and profitability. The occurrence of oneor more of the aforementioned risks could have a material adverse effect on the Adler Group’sfinancial condition and results of operations.

The Adler Group’s future growth will depend on its ability to maintain and successfullyexpand its market position and customer base. Awareness of the Adler Group name andexisting customer loyalty programmes, particularly the Adler customer card, but also its ownbrands, are an important way of securing customer loyalty and attracting new customers. Customerloyalty can be achieved not only by offering high quality, attractive products and a good price-performance ratio, but also through appealing customer loyalty programmes. Increasing theawareness and acceptance of the Adler brand helps to acquire new customers and gives sales aboost. Successful customer loyalty programmes also enable the Company to develop a profile anddistinguish itself from its competitors. There is a risk that the Adler Group will not be able tomaintain or successfully expand its customer base. The customer loyalty programmes requireconsiderable marketing and advertising expenditure. The Adler Group may not be in a position todedicate the necessary resources to marketing and advertising. In addition, the substantialresources spent by the Adler Group on their advertising spokespeople to promote brand awarenessand appeal and customer loyalty may not have the desired effect. It is possible that thespokespeople used by the Adler Group will lose their positive public image, and this could have anegative effect on the stock it sells. If the Adler Group is unable to permanently secure the loyaltyof its existing customers and attract new customers, its competitiveness and sales figures couldsuffer greatly. The occurrence of one or more of the aforementioned risks could have a materialadverse effect on the Adler Group’s financial condition and results of operations.

The Adler Group faces risks as a result of its ties to third-party service providers inconnection with stock procurement. The Adler Group procures its stock from numeroussuppliers both within Europe and, to a substantial extent, from Asia. Even though it does notdepend on individual suppliers in Europe, the Adler Group’s business would be prejudiced if alarge number of its European suppliers went out of business at the same time, for examplebecause of global economic or political developments. The Adler Group might not be able to keepa sufficient volume of stock in hand in order to make up for stock shortages. This could lead to aloss of customers and revenues. Stock from Asia is predominantly purchased through MGB, so theAdler Group has no direct influence on the procurement of this stock. The Adler Group thereforedepends on the proper and timely purchase, storage and transportation of stock by MGB. If theseprocesses are disrupted or interrupted, the stock required by the Adler Group may not be availableon time or at all. One of the consequences of the retail clothing trade’s dependence on the seasonand weather conditions (see ‘‘The Adler Group’s business is subject to seasonal fluctuations andweather conditions’’) is that stock that arrives late may no longer be sellable. This could materiallyprejudice the Adler Group’s business. In addition, the Adler Group may not be able to meetcontractually agreed minimum purchase volumes, which could trigger damages payouts orpremature termination of the agreement by MGB. The agreement with MGB was extended until2013, however there is no guarantee that the existing procurement arrangement will continue

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permanently on the favourable supply terms that currently apply. If MGB raises supply pricessharply, the Adler Group’s sales and also its margins could be seriously affected. If MGB, as theprocurer of stock from Asia, goes out of business, the Adler Group might not be able tocompensate quickly for the loss of its partner, or not without substantial additional costs. It is by nomeans certain that the Adler Group would be able to arrange procurement through other third-partyservice providers, procurement agents or directly with the respective manufacturers – at least notwithout incurring substantial expense – without facing supply interruptions, poor quality or costincreases together with the associated plunge in sales and margins. Furthermore, it is possible thatAdler’s gross profits, particularly in its procurement markets, will fall in the future, for example as aresult of increasing cotton or commodities prices, energy costs and/or wage costs. Adler may beunable to pass on some or all of these price rises to its customers. The occurrence of one ormore of the aforementioned risks could have a material adverse effect on the Adler Group’sfinancial condition and results of operations.

The Adler Group faces risks associated with disruptions to its stock management systemsor to logistics services outsourced to an external logistics services provider. MOTEX Mode-Textil-Service Logistik und Management GmbH (‘‘MOTEX’’) centrally handles, processes, tags,finishes off semi-finished products, consigns, distributes and transports stock nationally andinternationally for the Adler Group with its own and third-party vehicles. MOTEX was formerly asubsidiary of Adler Modemarkte AG. This gives rise to additional risks for the Adler Group overand above the general logistics risks posed by, in particular, strikes and natural disasters, whichcan hinder and delay the transportation of stock, particularly by sea or by air. After MOTEX wasspun-off, the Adler Group no longer had any direct influence on the logistics services and activitiesof MOTEX. Therefore, the Adler Group is dependent on MOTEX meeting its contractual obligationsand processing and delivering the Adler Group’s stock on time. The MOTEX spin-off has increasedthe risk that errors will occur when the Adler Group’s stock is processed, because MOTEX nowhas a more diverse customer base. One of the consequences of the retail clothing trade’sdependence on the season and weather conditions (see ‘‘The Adler Group’s business is subject toseasonal fluctuations and weather conditions.’’) is that stock that arrives late may no longer besellable. Additional customs duties or tolls either in Germany or abroad or rising fuel prices couldalso make logistics services more expensive. The cost of these services could also increasebecause competitors of the Adler Group or other third parties may be prepared to pay higherprices for MOTEX’s logistics services. Any disruption, interruption or substantial price rise in thelogistics chain could prejudice the Adler Group’s business and be materially detrimental to theAdler Group’s financial condition and results of operations.

The Adler Group’s operations may be disrupted or interrupted. The Adler Group’s successheavily depends on the efficient and uninterrupted operation of its IT systems. As IT systems areparticularly susceptible to damage, programming errors, power outages, fire, construction work andsimilar physical interventions, it is impossible to completely rule out any disruption or interruption tothe system. It is also possible that the IT systems will be compromised by electronic or physicalattacks by third parties or computer viruses or similar attacks, despite existing electronic andphysical security systems. Any failure of the IT systems would be seriously detrimental to, inparticular, orders, warehousing, co-operation with external logistics services providers, online salesand cashier services in the Adler stores. This could lead to stock shortages and to delays orfailures to deliver stock purchased online. As a result, the Adler Group may not be able to keepthe necessary product range in stock in the Adler stores or meet existing delivery obligations. Thiscould lead to a loss of customers and sales. The occurrence of one or more of the aforementionedrisks could have a material adverse effect on the Adler Group’s financial condition and results ofoperations.

The Adler Group’s growth strategy could be unsuccessful or progress more slowly thanplanned. In particular, the Adler Group may be unable to continue to grow organically ortake over and successfully integrate other companies. The Adler Group plans to expand itsbusiness, primarily in Germany, but also abroad in the medium term. The Adler Group may beunable to increase its market share through organic growth, or its expansion may be delayed. Inaddition, the Adler Group may also be unable to expand through the acquisition of othercompanies or by acquiring suitable retail space on reasonable conditions. The Adler Group seesthe acquisition of other companies as a potential opportunity to consolidate its market position. TheAdler Group is in competition with other companies when it comes to acquisitions, and itscompetitors may prove to have greater financial resources or otherwise be able to assert a

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stronger bargaining position than the Adler Group. The Adler Group may be unable to identifycompanies that could be potential takeover targets or negotiate reasonable terms of acquisition.The Adler Group may not be able to successfully run the companies it takes over. The AdlerGroup’s products may not match fashion trends in foreign countries. This could jeopardise thefinancing of acquired companies, as well as Adler’s future growth. The Adler Group may also beunable to successfully integrate the acquired companies in the Adler Group or take advantage ofthe expected synergies. The integration of companies is associated with a range of risks such asthe integration of production and distribution processes and staff, unforeseeable expenses andprejudice to the existing business. Adler primarily focuses on large-space retail concepts, i.e. thespace occupied by its stores is usually more than 1,000 m2. Adler stores are generally locatedoutside the city centre, but nevertheless generally contain an assortment of stock targeted at innercity customers. Adler may not be able to obtain the necessary approvals on a sufficient scale. Anyfurther expansion of the store network in inner city areas as a result may not be well received bythe Adler Group’s customers. This could impair the Adler Group’s growth. The occurrence of oneor more of the aforementioned risks could have a material adverse effect on the Adler Group’sfinancial condition and results of operations.

The development of retail space is associated with considerable financial expense anduncertainty with regard to future profitability. The Adler Group plans to expand its storenetwork both domestically and abroad. This also increases the sales risk. It is possible thatincorrect assumptions will be made in the planning process, in evaluating the appeal of particularlocations and customer potential and, on that basis, the actual sales potential of a new Adler store.If sales fall short of expectations, there may be surplus stock, which would translate into a drop inrevenues. Furthermore, the opening of new stores requires greater capital expenditure andincreases running costs for rent and staff. It may only be possible to open new Adler stores if theCompany agrees to pay exorbitant rents. This could have an adverse effect on Adler’s results andliquidity in particular. There is also no guarantee that the new Adler stores can be operated at aprofit. To this extent, the Adler Group’s expansion strategy is coupled with a heightenedentrepreneurial risk. The occurrence of one or more of the aforementioned risks could have amaterial adverse effect on the Adler Group’s financial condition and results of operations.

Defective stock could adversely affect the market’s acceptance of the Adler Group’sproducts and trigger damages claims against the Adler Group. Adler’s target group expectshigh quality. The Adler Group’s products could be defective, which could lessen the market’sacceptance of its products and thus also adversely affect sales. Where there are several instancesof product defects within a short space of time, the reputation of the Adler Group’s products couldbe damaged, particularly given the quality standards of its customers, and this could lead to adrastic decline in sales. The Company procures its products exclusively from third partymanufacturers. Because of its practice of outsourcing the entire logistics process, the Adler Groupmay not always be able to identify and rectify defects in the quality of the products it procuresearly enough (see ‘‘The Adler Group faces risks as a result of its ties to third-party serviceproviders in connection with stock procurement.’’ and ‘‘The Adler Group faces risks associated withdisruptions to its stock management systems or to logistics services outsourced to an externallogistics services provider.’’), and to this extent the Adler Group is also dependent on the qualitycontrols of its suppliers. The Company may have rights of recourse if products purchased from itssuppliers are defective. However, it is possible that, due to its contractual agreements withsuppliers, the Adler Group will not be able to seek redress to the full extent or be able to enforceany or part of its rights of recourse against its suppliers or other third parties for legal, financial orother reasons. In particular, defects in a particular line or ongoing quality defects may dopermanent damage to the reputation of the Adler Group’s products. It may not necessarily bepossible to fully make up for this damage. The Adler Group may not be able to implement othermeasures to offset any damage to reputation and loss of sales associated with defective products.As a result, new customer numbers could stagnate and existing customers may turn to othercompetitors, which could lead to a loss of market share. The Adler Group may be faced withproduct liability claims, warranty claims and damages claims if its products are defective. Wheresuch claims are not covered by existing third-party liability insurance, the Adler Group could beburdened with substantial costs (see ‘‘The Adler Group’s existing insurance protection may beinadequate.’’). If all items of a certain make are defective, a recall of previously sold stock may berequired, which would trigger substantial costs. The use of illegal chemicals, even if unintentional,could also give rise to (criminal) legal sanctions, including onerous fines and/or product liabilitydamages claims against the Adler Group. There is no guarantee that provisions have been set

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aside to a sufficient extent for this purpose or that provisions already set aside will be adequate tocover such claims, particularly if customers sustain consequential loss or damage far in excess ofthe value of the products sold by the Adler Group. The occurrence of one or more of theaforementioned risks could have a material adverse effect on the Adler Group’s financial conditionand results of operations.

The Adler Group’s liquidity could suffer significantly if a substantial portion or even alloutstanding discount entitlements are redeemed within a very short timeframe. Holders ofthe Adler customer card can obtain a 3% discount on the price when they purchase Adlerproducts, provided they present the card when they make their purchase. Customers may elect toclaim their discount entitlement as a discount on their next purchase or in cash. Discountentitlements expire on 31 December of the calendar year following the year of purchase. Based onpast experience, the Company assumes that not all customers will redeem their discountentitlement, and that the redemption of discount entitlements will occur across an extended period.The Adler Group’s liquidity could therefore suffer significantly if a substantial portion or even alloutstanding discount entitlements are redeemed within a very short timeframe.

The Adler Group’s business is subject to seasonal fluctuations and weather conditions. TheAdler Group’s sales, profits, and also its financing requirements are subject to seasonalfluctuations. For example, sales and profits in the second half of the year, particularly in the fourthquarter, tend to be higher than in the other quarters because more winter clothing is sold, andwinter clothing generally has a higher average price per item. Moreover, the product range in thespring and summer months includes a comparatively higher proportion of cheaper products such asT-shirts. As a result of the seasonal nature of demand for clothing, the Adler Group’s peak periodsfor purchases of goods and therefore higher financing requirements are in the months of Februaryand March, and August and September. Adler endeavours to reduce its peak financingrequirements and also to manage its liquidity by agreeing long-term target payment dates, withpayment due in some cases only after the products have been sold. Nevertheless, thesefluctuations may have a substantial adverse effect on interim results figures and it is possible thatresults will be negative, particularly in the first quarter of the financial year. These fluctuations maybecome more extreme in future. The retail clothing trade is also heavily dependent on weatherconditions. Previously, consumers would buy new clothes at the beginning of each seasonregardless of weather conditions, whereas consumers today are showing a clear tendency towardsimpulse buying. These days, consumers expect a range of clothing to suit the weather conditions.This is why summer stock is still in demand if the autumn is warm, while if winter arrives late, thedemand for winter clothing can push into spring. This lessens the Company’s ability to plan whichitems to keep in stock, and gives rise to the risk that its purchasing and warehousing policies willbe flawed because of the weather. The ability to compare the sales and results of each individualquarter is therefore limited. These figures cannot be used to draw reliable conclusions with regardto future results trends, and cannot be aggregated and extrapolated to predict net income for theyear. If actual quarterly results deviate from the forecast, the quoted market price of AdlerModemarkte AG shares could become extremely volatile. This could have a negative impact on theAdler Group’s liquidity situation and its refinancing capabilities, and thus a material adverse effecton its financial condition and results of operations.

The public’s perception and the reputation of the Adler Group could be adversely affectedor damaged if the manufacturers of the products sold by the Adler Group fail to complywith employment, social and recognised ethical or other standards. The Adler Group procuresa significant share of its stock from low-income countries in Asia, including from so-called freeexport zones, which give locally domiciled companies privileges and preferential treatment, such asexemptions from customs duties and tax breaks, as well as various subsidies. Production in thesecountries is characterised by intense manual labour, large numbers of workers, and a great deal oftime and pricing pressure. The employment conditions and social standards experienced byemployees in these countries differ vastly from those by which European employers are boundand, in some cases, are criticised by non-government organisations like the International LabourOrganisation (ILO). The introduction of acceptable uniform employment conditions and socialstandards is complicated by the existence of differing legal systems and political and culturalfactors. The Adler Group has assurances from some of its suppliers that the textiles used complywith ecological standards such as the ‘‘Oeko-Tex Standard 100’’, and that the goods supplied werenot manufactured using any type of labour that is exploitative, harmful to health, akin to slavery orotherwise against human dignity, such as child labour, forced labour or bonded labour. However, it

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is possible that, despite the standards imposed and the fact that MGB has been interposed inorder to uphold these standards, the goods sold by the Adler Group may still be produced usingchild and forced labour and exploitative methods, or in violation of ecological standards andregulations. It is also possible that service providers engaged by Adler, such as cleaning firms, donot observe employment, ethical, social and ecological standards or the standards of the BusinessSocial Compliance Initiative (‘‘BSCI Standards’’) in connection with the employment of theirworkers. Consumers are becoming increasingly aware of breaches of ethical, social and ecologicalstandards in the manufacture of consumer goods, and take such things into account when makingpurchase decisions. Such matters could – regardless of whether the Adler Group is in a position toidentify and influence the relevant matter – be seriously detrimental to sales of the goods inquestion and also have a negative impact on the public’s perception of the Adler Group, and havea material adverse effect on the Adler Group’s financial condition and results of operations.

Unexpectedly high increases in the wages payable to employees covered by collectivebargaining agreements in the retail sector could have a material adverse effect on Adler’swage and salary structure. Adler has entered into a supplemental collective bargaining agreement(company internal wage agreement) for all of its workers employed in Germany with the Germantrade union for the services sector (vereinte Dienstleistungsgewerkschaft, ‘‘ver.di’’). This companyinternal wage agreement provides that the wages to be paid by Adler to its employees in 2011 and2012 must be increased by 50% in accordance with the wage rises set forth in the retail sectorcollective bargaining agreement for Bavaria. From 2013 onwards, wage rises will be based on theretail sector collective bargaining agreement for North Rhine-Westphalia. If the retail sectorcollective bargaining agreements referred to above provide for wage increases in excess of theCompany’s expectations, this could have a material adverse effect on the Adler Group’s wage andsalary structure and thus also on its financial condition and results of operations.

The Adler Group’s future success depends on executives and other qualified employees.The Adler Group’s success substantially depends on executives and other qualified employees, andparticularly on the members of the Company’s Executive Board. The Company’s proposed growthand the successful operation of the Adler stores requires qualified executives and employees.Companies compete for qualified staff. Executives and other qualified employees could switch to acompetitor or establish their own company or otherwise compete with the Adler Group. If the AdlerGroup is unable to retain qualified staff, solicit additional qualified staff or provide existing staff withfurther training, the Company may experience problems in achieving its strategic and commercialobjectives. The occurrence of one or more of the aforementioned risks could have a materialadverse effect on the Adler Group’s financial condition and results of operations.

The Adler Group may be unable to adequately upgrade its in-house organisational andreporting structures, risk monitoring and risk management systems and its financialaccounting or adapt them to keep up with its rate of growth. The continual upgrade of internalorganisational structures and management processes so as to cope with the Adler Group’srestructure and its existing and planned future growth will place high demands on the Companyand tie up management resources to a significant extent. The finance (including accounting,controlling, legal and internal audit) and investor relations departments will be particularly affected.It cannot be guaranteed that the Adler Group will be able to meet these increased demands to anadequate extent or within a reasonable timeframe, particularly those relating to the risk controlsystem now mandatory under § 91 of the German Stock Corporation Act (Aktiengesetz, ‘‘AktG’’)due to the Company’s change in legal form, and it is therefore possible that failings andundesirable developments may occur within the aforementioned departments, which are notidentified in time and therefore have a material adverse effect on the Adler Group’s financialcondition and results of operations. The publicity and post-admission obligations stemming from theproposed IPO will also place increased demands on the Adler Group’s financial accounting system.Any breach of the Adler Group’s reporting and post-admission obligations could, as a result ofinvestors losing confidence in the Company, have a material adverse effect on the quoted marketprice of Adler Modemarkte AG’s shares. If the Company is unable to seasonably identify omissionsor shortcomings in its risk monitoring or risk management system, or is unable to implement anadequate system in time, then undesirable developments or bad decisions, either commercially oradministratively, may result. The occurrence of one or more of the aforementioned risks could havea material adverse effect on the Adler Group’s financial condition and results of operations.

The Adler Group’s existing insurance protection may be inadequate. The Adler Group hastaken out insurance to cover various risks associated with its business, and such insurance is

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subject to agreed maximum sums insured and contractually defined exclusions of liability, which theCompany believes are standard. The Adler Group decides on the type and scope of insuranceprotection based on a commercial cost/benefit analysis in order to cover what it perceives to bethe significant risks. The Company cannot, however, guarantee that the Adler Group will notsustain losses or be exposed to claims going beyond the type or scope of existing insuranceprotection. The Adler Group could sustain damage for which it is not or only inadequately insured.If several insured events occur or major damage is sustained, the Adler Group’s premiums mayincrease. There is no guarantee that the Adler Group will be able to adequately insure the risksassociated with its business on commercially feasible terms in the future. The occurrence of one ormore of the aforementioned risks could have a material adverse effect on the Adler Group’sfinancial condition and results of operations.

The Adler Group faces risks from changes in interest rates, which could adversely affectthe Adler Group’s results. Even though the Adler Group’s debt capital financing is minimal at themoment, it is possible that it will seek financing to a greater extent in the future in the form ofcredits or loans, some or all of which may be subject to variable interest rates. Interest rate swapscan be used to hedge interest rate risks. However, to the extent that hedging transactions are notentered into, changes in interest rates could have a negative impact on (i.e. increase) the amountof interest payments for existing debt and the costs of refinancing those debts. Interest rate swapscould also generate losses, which would have to be recognised in the accounts accordingly. Theoccurrence of one or more of the aforementioned risks could affect the Adler Group’s results andthus have a material adverse effect on the Adler Group’s financial condition and results ofoperations.

The Adler Group faces risks associated with using external brands, which could adverselyaffect the Adler Group’s results. Apart from its own brands, Adler has increasingly offeredexternal brands in certain Adler stores since 2010, including s.Oliver, Tom Tailor, Street One,Cecil, Mexx and OneTouch. The ratio of external to own brands sold by Adler may not beappropriate. If customers increasingly buy Adler’s own brands, the owners of the respectiveexternal brands may refuse any further co-operation with Adler, which could diminish the appeal ofAdler stores. If customers increasingly prefer external brands, Adler’s margins may fall. Theoccurrence of one or more of the aforementioned risks could affect the Adler Group’s results andthus have a material adverse effect on the Adler Group’s financial condition and results ofoperations.

Legal and tax risks

The Adler Group faces risks in connection with Adler store leases. The Adler Group hasleased the vast majority of its Adler stores. The respective lease agreements are generally enteredinto for a long fixed term. This may make it impossible for the Adler Group to close or relocateunprofitable stores quickly and at an acceptable cost. The Adler Group could therefore be tied tounprofitable locations for long periods, or only be able to give them up by paying substantialamounts in compensation. The rent for the leased retail space is usually linked to the consumerprice index. Any increase in the consumer price index leads to an amendment of the existing leaseagreements and an increase in the rent payable by Adler. In addition, an increase in general rentlevels for new leases could give rise to costs in excess of those budgeted. There is also thepossibility that the Company’s reorganisation as a stock corporation, or the change in Adler’sownership in the lead-up to or in the course of the IPO, will prompt lessors to require security fortheir leases, a requirement which they have hitherto waived. This could have an adverse effect onthe Adler Group’s liquidity and/or results. Rent levels in certain locations in which the Adler Grouphas stores could also experience a general decline, but depending on the store, the lessor and theterms of the lease, the Adler Group may not be able to take advantage of falling rents through alease amendment or rent reduction. This could prevent the Adler Group from realising cost savingsand thus have a negative impact on the Adler Group’s competitiveness and results of operations.The Adler Group has also assumed extensive property maintenance and repair obligations undercertain lease agreements. As a result, the Adler Group could face extensive costs for repair work,which may be difficult to calculate. It is also possible that the lessor under some lease agreementsmay have a right to terminate the lease before expiry of the intended term because of non-compliance with the statutory written form requirement, or because of the change in Adler’sownership in the lead-up to or in the course of the IPO. Consequently, if leases are terminated, theAdler Group may be compelled to give up a range of locations at short notice. This relates to onelocation in particular, where the lessor has already terminated its existing lease with Adler effective

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31 December 2011, and could bring about a drastic decline in sales and customer numbers.Moreover, the Adler Group has undertaken modifications to many of the Adler stores it leases,which it will be required to remove or reverse if the leases are terminated. The termination ofleases could thus give rise to substantial costs for the Adler Group. The occurrence of one ormore of the aforementioned risks could have an adverse effect on the Adler Group’s financialcondition and results of operations.

Stock procurement could become more difficult by virtue of existing or future importrestrictions on goods from the Adler Group’s supply markets. The Adler Group purchases asignificant share of its stock from Asia. In the past, the EU has introduced import quotas for certainproducts from certain non-EU countries in order to strengthen certain industrial sectors within theEU. The Company cannot rule out the possibility that existing or future import restrictions on goodsfrom the Adler Group’s supply markets will result in restrictions or increased costs when stock ispurchased outside the EU (because of customs duties, or the need for procurement fromalternative and more costly sources, for example). Such import restrictions could have a materialadverse effect on the Adler Group’s financial condition and results of operations.

The legal relationship between the Adler Group and its customers is based on standardterms designed for incorporation in a large number of contracts. Individual errors in thedrafting of such terms could therefore affect numerous legal relationships. The Adler Grouphas a contractual relationship with many customers. In the context of online sales and customerloyalty programmes in particular, the contracts are often drafted on the basis of certain terms whichare intended to apply to a variety of cases. It is possible that individual provisions contain errors,or that consents to the use of personal information in connection with customer loyalty programmesare invalid. Given the sheer number of customer relationships, this could have serious adverselegal consequences for the Adler Group. The occurrence of one or more of the aforementionedrisks could have a material adverse effect on the Adler Group’s financial condition and results ofoperations.

The Adler Group’s compliance system and monitoring capabilities may not be sufficient inorder to prevent legal infringements or to expose past infringements, or to prevent damagefrom economic crime. It is possible that employees or agents of the Adler Group grant or grantedbenefits in the course of contract negotiations when initiating business dealings, or engage orengaged in similar unfair trade practices. It is also possible that the customer information acquiredin connection with customer loyalty programmes may have been used or disclosed to third partiesin contravention of privacy laws. Adler may not have paid customs duties on time, or may fail todo so in future. It is also possible that Adler has imported stock into the EU in contravention of theForeign Trade and Payments Act Implementing Regulation (Außenwirtschaftsverordnung, ‘‘AWV’’),or will do so in the future. This could result in legal sanctions such as fines against the AdlerGroup, the members of its corporate bodies and/or employees, and to third-party damages claims,and also significantly damage the Adler Group’s reputation. The Adler Group’s compliance systemand monitoring capabilities may not be sufficient in order to prevent such legal infringements or toexpose past infringements. In addition, it is possible that employees of the Adler Group will causeloss or damage to the Company through economic crime (fraud). The occurrence of one or moreof the aforementioned risks could have a material adverse effect on the Adler Group’s financialcondition and results of operations.

The Adler Group may not be able to adequately protect its intellectual property. The AdlerGroup’s commercial success is reliant on its ability to protect its intellectual property, primarily itstrademarks. If the Adler Group is unable to defend the existence of its intellectual property rights,its business model, which is founded on the distinctiveness of its brands, and thus also itscompetitiveness and sales could be materially impaired, because customer loyalty and Adler’sappeal to new customers also depend on customer awareness and acceptance of its brands. It isalso possible that third parties will infringe the Adler Group’s trademarks. The Adler Group haslicensed various companies to use its trademarks. The licence agreements generally provide thatthe licensee must deliver the goods manufactured and labelled with the licensed trademarkexclusively to buyers arranged by the Adler Group or to the Adler Group itself. Trademarkinfringement could arise, for example, if the licensee supplies the goods to non-prearranged buyersor continues to use the trademark after termination of the licence agreement. Furthermore, theAdler Group cannot guarantee that it will not fall prey to product piracy and be unable to effectivelydefend itself against such piracy for legal, financial or other reasons. In particular, the AdlerGroup’s commercial success could be prejudiced if it fails to detect infringements of its intellectual

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property rights, or fails to do so early enough. Product piracy could have a negative impact on theAdler Group’s sales figures in the relevant sales markets and also dilute and thus negatively affectthe prestige of its brands. The enforcement or defence of trademarks can also give rise toconsiderable costs and tie up management resources to a substantial extent. The Adler Group hasengaged Thomson CompuMark to monitor its significant trademarks throughout Europe. As part ofits engagement, Thomson CompuMark informs the Adler Group of newly registered third-partytrademarks that could potentially infringe trademarks owned by the Adler Group. Nevertheless, theaction taken by the Adler Group may not be sufficient to prevent the infringement of itstrademarks. The occurrence of one or more of the aforementioned risks could have a materialadverse effect on the Adler Group’s financial condition and results of operations.

The Adler Group could infringe third-party intellectual property rights. The Adler Group itselfcould infringe the intellectual property rights of third parties. The Adler Group has entered intoagreements governing trademark co-existence and prior rights with numerous companies, andthese agreements concern, among other things, the use of various Adler Group trademarks. It ispossible, for example, that the Adler Group may breach these trademark co-existence and priorrights agreements and thus also third-party trademarks. The Adler Group registers current fashiontrends and incorporates them in its lines of clothing in a form that matches the expectations of itstarget group. In so doing it is possible that stock sold by the Adler Group will infringe third-partyintellectual property rights, particularly registered designs or trademarks. Such infringements maybe met with claims for injunctive relief, information disclosure, damages or disposal and/ordestruction of the Adler Group’s products. This would mean that the Adler Group would have toremove already acquired stock from the market or invest substantial amounts in order to obtain alicence. This could, in turn, be prejudicial to its business and result in a steep fall in sales and areduction of margins. It is also possible that the planned upgrade and revival of productsnecessary for Adler’s future commercial success will be hampered in the future by third-partyproperty rights. The occurrence of one or more of the aforementioned risks could be materiallydetrimental to the Adler Group’s financial condition and results of operations.

The Adler Group faces competition law risks. It is possible that the Adler Group has alreadycontravened or will in the future contravene competition law provisions, particularly anti-trust andpublic procurement laws, or that third parties will make allegations of this nature, whether foundedor not. In particular, it is possible that competitors or customers will accuse the Adler Group ofabusing a dominant market position, price fixing or other anti-competitive conduct. This could leadto investigations by competition authorities or law enforcement agencies, the imposition of criminalor regulatory sanctions such as fines, or orders for the Adler Group to pay damages. There is alsothe risk that the Adler Group’s employees involved in the matter will be subject to criminalprosecution. It is also possible that any investigations by competition authorities or law enforcementagencies will have a negative impact on the Adler Group’s reputation. The occurrence of one ormore of the aforementioned risks could have a material adverse effect on the Adler Group’sfinancial condition and results of operations.

The Adler Group could, for past periods, be required to make additional tax payments oradditional social security contributions, or face liabilities from commitments made under itscompany pension scheme, or be required to repay government grants. The Adler Group issubject to periodic audits by the tax office and social security institutions. Although the Companybelieves that all companies in the Adler Group have always filed complete and correct tax returnsand have paid the correct amount of tax in each case and duly paid social security contributions, itis possible that additional payments and interest on such additional payments will be imposed if thetax authorities, particularly after a tax audit, or social security institutions take a different view ofthe facts. The Adler Group’s structure has changed in recent years and, in particular, subsidiarieshave been sold to or acquired by parties related to the Adler Group. Moreover, a profit and losstransfer agreement between the Company (the controlled entity) and its former shareholder,AMODA GmbH (the controlling entity), was terminated effective 31 December 2010. Various legalarrangements exist or existed between Adler Group companies and parties related to them. Sincethe tax authorities have not yet fully reviewed these structural changes and arrangements betweencompanies within the Adler Group as well as between companies within the Adler Group andparties related to them, it is possible that the Company will be required to make additional taxpayments, incidental tax payments (e.g. interest), and/or face greater tax liability in the future thancurrently expected, if the tax authorities assess the restructuring measures and arrangementsdifferently. The Company is also unable to rule out the possibility that liabilities associated with

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commitments under the company pension scheme will be higher than currently reported in theCompany’s financial statements, or that government grants awarded to Adler in the past will haveto be repaid for personnel reasons. The occurrence of one or more of the aforementioned riskscould have a material adverse effect on the Adler Group’s financial condition and results ofoperations.

Risks in connection with the Offering

Future sales of shares of the Company or comparable transactions by the SellingShareholder could adversely affect the share price. After full placement of all the OfferedShares (excluding exercise of the Greenshoe Option), the Selling Shareholder will continue to holdapproximately 45.4% (around 37.2% if the Greenshoe Option is exercised in full) of the Company’sshare capital. The sale of some or all of the shares held by the Selling Shareholder after theOffering has been implemented could have a material adverse effect on the stock market price ofthe Company’s shares. The Selling Shareholder has undertaken vis-a-vis the Global Co-ordinatorthat, for a period of twelve months from the commencement of trading in the shares, it will not sellany other existing shares of the Company or effect comparable transactions without the Global Co-ordinator’s consent. If the Selling Shareholder should nonetheless take such measures, regardlessof the timing of such transactions and the consent of the Global Co-ordinator, or if the marketshould become convinced that such measures could be taken, this could have a material adverseeffect on the stock market price of the Company’s shares and therefore make it more difficult forthe Company to raise further capital or only allow the Company to do so at unfavourable terms.Such sales could also make it more difficult for the Company in the future to issue new shares ata point in time and price it considers appropriate.

The Selling Shareholder may continue to exercise significant influence over AdlerModemarkte AG and the interests of the Selling Shareholder could conflict with those of therest of the shareholders. After full placement of all the Offered Shares (excluding exercise of theGreenshoe Option), the Selling Shareholder will continue to hold approximately 45.4% (around37.2% if the Greenshoe Option is exercised in full) of the Company’s share capital. The interestsof the Selling Shareholder could conflict with those of the rest of the shareholders. Depending onthe attendance at the Company’s Annual General Meeting, the Selling Shareholder could still havea significant influence on the approved resolutions and could push through the adoption ofresolutions requiring only a simple majority of the votes cast regardless of how the othershareholders in attendance vote solely by virtue of the voting interest it holds. Such resolutionsinclude, for example, the composition of the Supervisory Board, the decision on the appropriationof profits (and thus the decision as to the payment of dividends), the ratification of the acts of themembers of the Executive Board and Supervisory Board, as well as decisions on certain keycapital measures. The concentration of shareholdings could have an adverse effect on the stockexchange price of the Company’s shares and thus make it more difficult for the Company to raisefurther capital or only allow it to do so at unfavourable terms. The Selling Shareholder or itsaffiliates could in the future acquire equity interests in competitors of the Adler Group. This couldintensify potential conflicts of interest between the Selling Shareholder and the rest of theshareholders. The occurrence of one or more of the aforementioned risks could have a materialadverse effect on the Adler Group’s financial condition and results of operations.

Future capital measures could lead to substantial dilution of the interests held by theshareholders in the Company. Future capital increases, particularly those excluding pre-emptivesubscription rights of shareholders, could lead to dilution of the shareholders’ interests in theCompany. If the Company were to take measures to raise additional equity, if applicable by theissue of shares after the exercise of conversion rights or options from convertible bonds orwarrant-linked bonds possibly still to be issued or the acquisition of other companies or equityinterests in companies in exchange for shares of the Company, as well as the possible issue ofshares based on employee stock option plans, or were to propose such measures to the AnnualGeneral Meeting, this could operate to dilute the interests held by shareholders or have a materialadverse effect on the stock market price of the Company’s shares. The Company has undertakenthat, for a period of 12 months from the commencement of trading in the Company’s shares, it willnot directly or indirectly offer or sell shares of the Company, announce any such offer or sale ortake any action deemed the economic equivalent of a sale without the Global Co-ordinator’sconsent. However, no assurance can be given that the Company will not take such action orpropose such measures to the Annual General Meeting within this 12-month period or at a later

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point in time or that the market will not become convinced that this will occur. This could have amaterial adverse effect on the stock market price of the Company’s shares.

The Company’s Offer Price is expected to significantly exceed the proportional book valueof the equity per share. The Offer Price to be paid by investors acquiring shares of the Companyunder the Offering is expected to be well over the proportional net book value of AdlerModemarkte AG’s consolidated tangible assets attributable to one share. The Offer Price thereforeimplies a market capitalisation that significantly exceeds the book value of the equity. There is noguarantee that the price at which Adler Modemarkte AG’s shares are traded on the Frankfurt StockExchange after the Offering will reach the valuation level implied by the Offer Price. Nor is thereany guarantee that the share price can be maintained if it should reach the valuation level impliedby the Offer Price.

No guarantee can be given that active or liquid trading in the Company’s shares willdevelop and the share price could be volatile. Before the Offering, there was no public marketfor Adler Modemarkte AG’s shares. The Offer Price will be determined and set by the Global Co-ordinator in consultation with the Company and the Selling Shareholder on the basis of the book-building procedure. The Offer Price determined in this way may not correspond to the price atwhich the Adler Modemarkte AG shares are traded on the Frankfurt Stock Exchange after theOffering; instead, the share price could fall significantly below the issue price. No guarantee can begiven that active trading in the shares will develop or continue after the Offering. After the Offering,the share price of the Adler Modemarkte AG shares may be exposed to substantial fluctuations inparticular due to the interaction of supply of and demand for the Company’s shares or fluctuationsin the actual or forecast operating results, adjustments to any profit forecasts or failure to meetanalysts’ expectations, changes in general economic conditions or the general legal framework forAdler Modemarkte AG as well as other factors, including the development of any of the risksdescribed in this Offering Memorandum. The number of shares in free float, fluctuation in theGroup’s results, economic volatility and the general performance on the financial markets(regardless of the Adler Group’s results and financial condition) could lead to substantial fluctuationin and have a material adverse effect on the share price. Similarly, general fluctuations in stockprices, particularly of companies operating within the same industry as Adler Modemarkte AG, orany deterioration in the general capital markets environment, for example due to political unrest inGermany or abroad, or due to natural disasters, could lead to price pressure on the shares ofAdler Modemarkte AG without this necessarily being attributable to the business or the financialcondition and results of operations of Adler Modemarkte AG.

The Offering may not take place. The Underwriting Agreement stipulates that the Global Co-ordinator may terminate the Underwriting Agreement under certain circumstances. If theUnderwriting Agreement were to be terminated, the Offering would not take place. Claims relatingto any securities commissions already paid and costs incurred by any investor in connection withthe subscription are controlled solely by the legal relationship between the investor and theinstitution to which the investor submitted its order. Any allotments already made to investors willbe invalidated. Investors have no claim to delivery of the shares of Adler Modemarkte AG in thisevent. Any investors who have made short sales would bear the risk of not being able to covertheir positions.

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GENERAL INFORMATION

Responsibility for the content of the Offering Memorandum

Pursuant to § 5 (4) German Securities Prospectus Act (Wertpapierprospektgesetz, ‘‘WpPG’’), AdlerModemarkte AG, Haibach (the ‘‘Company’’ or ‘‘Adler Modemarkte AG’’ and together with itsconsolidated subsidiaries collectively referred to as ‘‘Adler’’ or the ‘‘Adler Group’’) as well asCREDIT AGRICOLE CORPORATE & INVESTMENT BANK, Paris (‘‘Credit Agricole CIB’’, alsoreferred to as the ‘‘Global Co-ordinator’’ or ‘‘Bookrunner’’), assume responsibility for the contentof this Offering Memorandum and state that, to their knowledge, the information contained in thisOffering Memorandum is true and correct and that no material facts have been omitted. Theyfurther state that they have exercised due care to ensure that the information contained in thisOffering Memorandum is, to their knowledge, true and correct and that no facts have been omittedthat would be likely to alter the substance of this Offering Memorandum.

Notwithstanding § 16 WpPG, neither the Company nor the Global Co-ordinator are under any legalobligation to update the Offering Memorandum.

In the event claims are asserted before a court of law based on information contained in thisOffering Memorandum, the investor appearing as plaintiff may be required to bear the costs oftranslating the Offering Memorandum prior to the commencement of legal proceedings incompliance with the national laws of the individual Member States of the European Economic Area.

Documents on display

For the period during which this Offering Memorandum is valid, copies of the following documentscited in this Offering Memorandum may be inspected during regular business hours at the officesof Adler Modemarkte AG, Industriestraße Ost 1-7, D-63808 Haibach, Germany:

* the Company’s Articles of Association;

* the Company’s audited HGB annual financial statements as at 31 December 2008 (the ‘‘2008HGB Annual Financial Statements’’);

* the Company’s audited IFRS consolidated financial statements as at 31 December 2009 (the‘‘2009 IFRS Consolidated Financial Statements’’);

* the Company’s audited IFRS consolidated financial statements as at 31 December 2010 (the‘‘2010 IFRS Consolidated Financial Statements’’, together with the 2009 IFRS ConsolidatedFinancial Statements jointly referred to as the ‘‘IFRS Consolidated Financial Statements’’);

* the Company’s audited HGB annual financial statements as at 31 December 2010 (the ‘‘2010HGB Annual Financial Statements’’ and together with the 2008 HGB Annual FinancialStatements jointly referred to as the ‘‘HGB Annual Financial Statements’’);

* the Company’s unaudited IFRS interim consolidated financial statements as at 31 March 2011(the ‘‘2011 IFRS Consolidated Interim Financial Statements’’).

The Company’s future annual and interim financial reports will be available at the Company’soffices and in the electronic companies register (www.unternehmensregister.de).

Statutory auditor

The Company’s auditor is PricewaterhouseCoopers AktiengesellschaftWirtschaftsprufungsgesellschaft, Friedrichstr. 14, 70174 Stuttgart (‘‘PwC’’). PwC is a member of theGerman Chamber of Public Accountants (Wirtschaftspruferkammer).

PwC audited the HGB Annual Financial Statements and IFRS Consolidated Financial Statementsand issued unqualified auditor’s reports thereon as reproduced in this Offering Memorandum.

Forward-looking statements

This Offering Memorandum contains certain forward-looking statements referring to the business,the financial performance and earnings of Adler and the areas of business in which Adler operates.Forward-looking statements are statements relating to future facts, events and other circumstancesnot constituting historical facts. Expressions such as ‘‘expect’’, ‘‘intend’’, ‘‘plan’’, ‘‘assume’’ or‘‘probably’’ are indicative of such statements. Such statements merely reflect the Company’sopinion at the present time with respect to future events, and as such their realisation is subject torisks and uncertainties.

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The forward-looking statements in this Offering Memorandum relate, inter alia, to:

* the implementation of the Company’s strategic plans and the impact of these plans on Adler’sfinancial condition and results of operations;

* the use of the issue proceeds;

* the development of the competitive situation and competitors;

* the Company’s expectations with respect to the impact of economic, operational, legal andother risks relating to Adler’s business; and

* other statements regarding Adler’s future business development and general economic andtechnological developments and other general conditions relevant to the business.

These forward-looking statements are based on current plans, assessments, forecasts andexpectations of the Company and on certain assumptions, which, although the Company believesthem to be reasonable at the present time, may prove to be incorrect. Numerous factors maycause Adler’s actual development, performance or earnings generated to differ materially from thedevelopment, performance or earnings expressly or implicitly assumed in the forward-lookingstatements. Adler’s business is subject to a number of risks and uncertainties which could alsoresult in forward-looking statements, assessments or forecasts being incorrect. For a more detaileddiscussion of the factors that could impact the future development of Adler’s business and themarkets on which it operates, the Company strongly recommends reading the sections entitled‘‘Summary of the Offering Memorandum’’, ‘‘Risk Factors’’, ‘‘Management’s Discussion and Analysisof Financial Condition and Results of Operations’’, ‘‘Business’’, and ‘‘Recent Developments andOutlook’’ in this Offering Memorandum.

Should any one or more of these changes or uncertainties occur or should the Company’sunderlying assumptions prove incorrect, it cannot be ruled out that actual results will differmaterially from the assumptions, estimates or expectations described in this Offering Memorandum.This could operate to prevent the Company from achieving its financial and strategic objectives.The Company and the Global Co-ordinator do not intend to update the forward-looking statementsor the industry and customer information set forth in this Offering Memorandum beyond that whichis required by law.

Industry, market and customer data and information from third parties

This Offering Memorandum contains industry, market and customer data as well as calculationstaken from industry reports, market research reports, publicly available information and commercialpublications (‘‘External Information’’). External Information was, in particular, used for statementsregarding markets and market developments.

This Offering Memorandum also contains assessments of market data and information derivedtherefrom, which is not ascertainable from publications of market research institutes or from anyother independent sources. Such information is based on the Company’s internal assessmentsmade based on many years of experience and expertise of its management and staff, evaluationsof industry information (from trade journals, trade fairs, meetings) or company-internalassessments. As such, it may differ from the estimates of the Company’s competitors orinformation gathered in the future by market research institutes or other independent sources.

Other Company estimates, by contrast, are based on published information or figures fromexternal, publicly available sources. The following sources, in particular, were relied on in preparingthe Offering Memorandum:

* Federal Ministry of Family Affairs, Senior Citizens, Women and Youth (Bundesministerium furFamilie, Senioren, Frauen und Jugend), Age: The driving force behind the economy, FinalReport (Wirtschaftsmotor Alter, Endbericht), July 2007;

* Institute of German Textile Retail Traders (Bundesverband des Deutschen Textilhandels,‘‘BTE’’), 2010 Statistics Report (‘‘BTE Statistics Report 2010’’);

* Institute of German Textile Retail Traders (Bundesverband des Deutschen Textilhandels,‘‘BTE’’), 2009 Statistics Report (‘‘BTE Statistics Report 2009’’);

* Institute of German Textile Retail Traders (Bundesverband des Deutschen Textilhandels,‘‘BTE’’), Statement dated 18 January 2010;

* German E-Commerce and Distance Selling Trade Association (Bundesverband des DeutschenVersandhandels e.V., ‘‘BVH’’), E-commerce trends in Germany 2010 (BtC);

29


* Business Technology Consulting AG (BTC), Distance selling and e-commerce in Germany2009 (Versand- und Online-Handel in Deutschland 2009) (B2C);

* Datamonitor, Apparel Retail in Germany, Industry Profile;

* Datamonitor, Menswear in Germany, Industry Profile;

* Datamonitor, Womenswear in Germany, Industry Profile;

* Eurostat, Statistics Austria, 2010-2012: Osterreichische Nationalbank forecast, December2010;

* Eurostat Press Office, Euro indicators press release, 34/2010, 4 March 2010 (‘‘EurostatPress Release 34/2010’’);

* Eurostat Press Office, Euro indicators press release, 148/2010, 6 October 2010 (‘‘EurostatPress Release 148/2010’’);

* Germany Trade and Invest, Economic trends compact (Wirtschafttrends kompakt),Luxembourg, mid-year 2010;

* Textile + Fashion Confederation (Gesamtverband textil + mode), Reports on the Economy 01/2009-12/2010;

* Society for Consumer Research (Gesellschaft fur Konsumforschung, ‘‘GfK‘‘) Market research,press release dated 28 September 2010, Findings of the GfK Consumer Climate Study forSeptember 2010;

* GfK TextilNews, Autumn 2008;

* GfK TextilNews, Winter 2009;

* GfK TextilNews, Autumn 2010;

* GS1 Germany & WP7 Partners (Bridge Project), Supply Chain Management in the EuropeanTextile Industry: Problem analysis and expected EPC/RFID benefits, July 2007).

* German Retail Federation (Handelsverband Deutschland, ‘‘HDE’’), E-commerce forecast 2010;

* Konzept & Markt GmbH/TextilWirtschaft, Top Shops 2009, November 2009;

* KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprufungsgesellschaft,Commerce Trends 2010;

* KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprufungsgesellschaft,Commerce Trends 2005 – Outlook for the food, fashion & footwear industries, 2003;

* Mintel, Clothing Retailing Germany 2010 (‘‘Mintel Germany 2010’’);

* Mintel, Clothing Retailing Germany 2010 (‘‘Mintel Europe 2010’’);

* Otto Group 2009 Trend Study;

* German Federal Statistical Office (Statistisches Bundesamt), Population of Germany through2050 (Bevolkerung Deutschlands bis 2050), per 2007;

* German Federal Statistical Office, Press release 061 dated 24 February 2010;

* Consumer Reports (Stiftung Warentest), Finanztest, 8/2010;

* TextilWirtschaft, BTE communication dated 5 February 2009 und 21 January 2010;

* TextilWirtschaft, Germany’s major clothing suppliers 2009 (Die großten Bekleidungslieferantenin Deutschland 2009);

* TextilWirtschaft, Kundenmonitor, Socialwear, November 2008;

* TextilWirtschaft, TW study, Putting vertical partnerships to the test – Trade survey findings(Vertikale Partnerschaften auf dem Prufstand – Ergebnisse einer Handelsbefragung), May2008 (‘‘TW Study’’);

* Verdict, Value Clothing in European Retail, September 2009 (‘‘Verdict Report 2009’’).

The majority of the market information contained in this Offering Memorandum is a condensation ofinformation derived by the Company on the basis of the above studies. Specific studies were citedonly in those cases where the relevant information may be taken directly from such study. Theremaining assessments of the company are based on internal sources, unless expressly indicatedotherwise in this Offering Memorandum.

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Industry and market research reports, publicly available sources and commercial publicationsgenerally indicate that, while the information contained therein stems from sources that may beassumed to be reliable, the accuracy and completeness of such information is not guaranteed andthe calculations contained therein are based on a number of assumptions. Consequently, thesecaveats also apply to the information included in this Offering Memorandum. Neither the Companynor the Global Co-ordinator has verified the accuracy or completeness of External Information.

Any information taken from third parties has been accurately reproduced in this OfferingMemorandum. As far as the Company and the Global Co-ordinator are aware and able toascertain from the information taken from third parties, no facts have been omitted that wouldmake the information reproduced incorrect or misleading.

A glossary containing the technical terminology and abbreviations used herein is provided at theend of this Offering Memorandum.

Note regarding currency and financial information

Financial information

Unless otherwise indicated, the financial information contained in this Offering Memorandum on theAdler Group, which refers to reporting dates 31 December 2009 or 31 December 2010 or thefinancial years ended 31 December 2009 or 31 December 2010, has been taken from the 2010IFRS Consolidated Financial Statements.

Unless otherwise indicated, the financial information contained in this Offering Memorandum on theAdler Group, which refers to the reporting date 31 December 2008 or the financial year ended31 December 2008, has been taken from the 2009 IFRS Consolidated Financial Statements, whichinclude comparative figures for the financial year ended 31 December 2008.

Unless otherwise indicated, financial information contained in this Offering Memorandum on AdlerModemarkte AG, which refers to reporting dates 31 December 2009 or 31 December 2010 or thefinancial years ended 31 December 2009 or 31 December 2010, has been taken from the 2010HGB Annual Financial statements.

Unless otherwise indicated, financial information contained in this Offering Memorandum on AdlerModemarkte AG, which refers to the reporting date 31 December 2008 or the financial year ended31 December 2008, has been taken from the 2008 HGB Annual Financial statements.

Unless otherwise indicated, financial information contained in this Offering Memorandum on AdlerModemarkte AG, which refers to the reporting date 31 March 2011 or the three-month periodsended 31 March 2010 or 31 March 2011, has been taken from the unaudited 2011 IFRSConsolidated Interim Financial Statements and is unaudited.

Financial information that has been designated in this Offering Memorandum as unaudited has notbeen audited or reviewed by an auditor (pruferische Durchsicht) within the meaning of § 20.6 ofAppendix I to Commission Regulation (EC) No. 809/2004.

Currency information

This Offering Memorandum contains currency information in euros, which refers to the officialcurrency of the Federal Republic of Germany and other Member States of the European Union.Figures denominated in euros are indicated with ‘‘c’’ preceding the amount.

Rounding

Numerical figures contained in this Offering Memorandum in units of thousands, millions or billionsas well as percentages relating to numerical figures have been rounded off in accordance withstandard commercial practice. Therefore, totals or sub-totals contained in tables may differminimally from figures provided elsewhere in this Offering Memorandum, which have not beenrounded off. Due to rounding differences, individual numbers and percentages may not add upexactly to the totals or sub-totals contained in the tables or mentioned elsewhere in this OfferingMemorandum.

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THE OFFERING

Subject matter of the Offering Memorandum

The subject matter of this Offering Memorandum for purposes of the Offering, including anypotential over-allotment, (the ‘‘Offering’’) relates to a total of 11,629,950 no-par value ordinarybearer shares of the Company, consisting of

* 2,650,000 shares originating from a capital increase against cash contributions ofc2,650,000.00 to be resolved by the Company’s Annual General Meeting and excluding theSelling Shareholder’s pre-emptive subscription rights (the ‘‘New Shares’’);

* 7,463,000 shares from the holdings of the Selling Shareholder (the ‘‘Existing Shares’’); and

* 1,516,950 shares from the holdings of the Selling Shareholder for purposes of any potentialover-allotment (the ‘‘Greenshoe Shares’’, and together with the Existing Shares and the NewShares collectively referred to as the ‘‘Offered Shares’’),

each representing a notional interest in the share capital of c1.00 and carrying full dividend rightsfrom 1 January 2011.

The Offering consists of a public offering in the Federal Republic of Germany and privateplacements in certain other European jurisdictions outside the Federal Republic of Germany andoutside the United States of America. Outside the United States of America, the Offered Shareswill be offered in the context of a placement under Regulation S of the US Securities Act of 1933,as amended (the ‘‘Securities Act’’). No shares will be offered within the United States of America,Canada, Japan or Australia. The Offered Shares will be offered in one tranche both within theFederal Republic of Germany as well as in certain other European jurisdictions outside the FederalRepublic of Germany and outside the United States of America. To this extent, no differences existin relation to the number and features of the Offered Shares or the nature of the transactionsconnected therewith.

The Company and the Selling Shareholder, in consultation with the Global Co-ordinator, reservethe right to reduce the number of Offered Shares or to allot investors fewer than the total numberof Offered Shares.

The New Shares will be created when the capital increase against cash contributions to beresolved by the Company’s Annual General Meeting is implemented and entered in the commercialregister. Once the implementation of the capital increase has been recorded in the commercialregister, which is scheduled to take place on or before the first business day following expiry of theOffering Period, the Company’s share capital will be c18,510,000.00.

The subject matter of this Offering Memorandum for purposes of admission of the Company’sshares to trading on the regulated market (regulierter Markt) and the regulated market sub-segmentwith additional post-admission listing obligations (Prime Standard) of the Frankfurt Stock Exchangeis a total of 18,510,000 no-par value ordinary bearer shares of the Company, consisting of

* 15,860,000 shares (current share capital); and

* 2,650,000 shares originating from the capital increase against cash contributions to beresolved by the Company’s Annual General Meeting,

each representing a notional interest in the share capital of c1.00 and carrying full dividend rightsfrom 1 January 2011.

Price range, Offering Period, Offer Price and number of allotted shares

The price range within which orders may be placed is

e10.00 to e12.50

per share.

Orders must be submitted for a minimum of one share and may stipulate a price limit within theprice range, which is denominated in round euro amounts or round euro cent figures of 25, 50 or75 cents. Up to two orders may be submitted per securities account of any retail investor.

The Offering, during which investors will be given the opportunity to submit orders for the shares,is expected to begin on 30 May 2011 and end on 14 June 2011. On the final day of the OfferingPeriod, retail investors should be able to submit orders until 12.00 noon CEST and institutionalinvestors until 5.00 p.m. CEST. All orders are freely revocable until the respective Offering Periodexpires.

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The Company and Cheverny Investments Limited, Malta (the ‘‘Selling Shareholder’’), inconsultation with the Global Co-ordinator, reserve the right to reduce the number of OfferedShares, to reduce or raise the lower and/or upper limit of the price range and/or to extend orshorten the Offering Period. If the option to reduce the number of Offered Shares and/or modifythe price range and/or the Offering Period (collectively referred to as the ‘‘Offer Terms’’) isexercised and to the extent required under the German Securities Prospectus Act(Wertpapierprospektgesetz, ‘‘WpPG’’), a supplement to this Offering Memorandum will be filed withthe German Federal Financial Supervisory Authority (Bundesanstalt furFinanzdienstleistungsaufsicht, ‘‘BaFin’’) and published following approval thereof on the Company’swebsite (www.adlermode.com). The change will also be published on an electronic informationsystem and, to the extent required by the German Securities Trading Act(Wertpapierhandelsgesetz, ‘‘WpHG’’), in an ad hoc disclosure. Print copies of the supplement willalso be available free of charge during regular business hours at the offices of the Company andthe Global Co-ordinator. Investors will not be notified individually.

Changes to the Offer Terms will not operate to invalidate orders that have already been submitted.Investors who have already submitted orders prior to the publication of any supplement are entitledunder the German Securities Prospectus Act to revoke their orders within two business days of thesupplement’s publication. The revocation need not stipulate any grounds and must be declared inwriting to the parties specified in the supplement as the recipient of such revocation; revocationsshall be deemed timely if dispatched before the notice period expires. Instead of revoking theirorders, investors may within two days of the supplement’s publication opt to modify orderssubmitted prior thereto or to submit new limit or market orders. The allotment of fewer than thetotal number of Offered Shares to investors shall not constitute a change to the Offer Terms andas such shall not trigger any duty to publish a supplement to this Offering Memorandum.

After the Offering Period expires, the Company, the Selling Shareholder and the Global Co-ordinator will use the order book created in the book-building process to jointly set the Offer Priceand the final placement volume. Pricing and the final placement volume will be set based on theorders submitted by investors during the Offering Period and collected in the order book.

Once the Offer Price has been fixed, the Offered Shares will then be allotted to investors based onthe orders submitted. The Offer Price and the results of the Offering are scheduled to be publishedon the final day of the Offering Period in an ad hoc disclosure on an electronic information systemand on the Company’s website (www.adlermode.com) and on the third business day followingexpiry of the Offering Period in a notice published in the Borsen-Zeitung. Investors who havesubmitted their orders through the Global Co-ordinator should be able to enquire at the office ofthe Global Co-ordinator as to the Offer Price and the number of shares they have been allottedstarting at the earliest on the banking day immediately following pricing. The allotted shares areexpected to be delivered in book-entry form against payment of the Offer Price and the customarysecurities commission two banking days after listing commences. Trading may commence evenbefore investors are notified of the number of shares they have been allotted. Particularly in theevent that the placement volume proves insufficient to satisfy all the orders submitted at the OfferPrice, the Global Co-ordinator, in consultation with the Company, reserves the right not to acceptinvestors’ orders, either in whole or in part.

Premature termination of the Offering

In the Underwriting Agreement with the Company (the ‘‘Underwriting Agreement’’), the Global Co-ordinator has reserved the right to terminate the Underwriting Agreement and discontinue theOffering. The Offering may be terminated even after trading has commenced and until the shareshave been delivered in book-entry form in exchange for payment of the Offer Price and thecustomary securities commissions.

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Projected timetable for the Offering

The projected timetable for the Offering is as follows:

27 May 2011.................................. Approval of the Offering Memorandum by BaFin

27 May 2011.................................. Publication of the Offering Memorandum on the Company’swebsite (www.adlermode.com)

28 May 2011.................................. Publication of the Offering in the Borsen-Zeitung

30 May 2011.................................. Commencement of the Offering Period

No later than 3 June 2011 ............. Capital increase resolution by the Annual General Meeting

14 June 2011 ................................. Expiry of the Offering Period at 12.00 noon (CEST) for retailinvestors (natural persons) and at 5.00 p.m. (CEST) forinstitutional investors

14 June 2011 ................................. Pricing and allotment

14 June 2011 ................................. Publication of the Offer Price and the final number of sharesplaced in an ad hoc disclosure on an electronic informationsystem and on the Company’s website (www.adlermode.com)

15 June 2011 ................................. Registration of the implementation of the capital increase in thecommercial register

15 June 2011 ................................. Listing order issued by the Frankfurt Stock Exchange

15 June 2011 ................................. Publication of the listing order of the Frankfurt Stock Exchange onthe Frankfurt Stock Exchange’s website (www.boerse-frankfurt.com)

16 June 2011 ................................. Listing commences; first day of trading

17 June 2011 ................................. Publication of the Offer Price and the final placement volume inthe Borsen-Zeitung

20 June 2011 ................................. Book-entry delivery of the shares against payment of the OfferPrice and customary securities commissions

This Offering Memorandum and any supplements thereto are scheduled to be published followingapproval thereof by the German Federal Financial Supervisory Authority (Bundesanstalt furFinanzdienstleistungsaufsicht, ‘‘BaFin’’) on the Company’s website (www.adlermode.com). Printcopies of the Offering Memorandum and any supplements thereto will also be available free ofcharge during regular business hours at the Company’s registered office.

Information concerning the shares

Voting rights

Each share carries one voting right at the Company’s Annual General Meeting. There are norestrictions on voting rights with the exception of those stipulated by law in specific cases. Allshares carry the same voting rights.

Dividend rights, right to share in the liquidation proceeds, pre-emptive rights and voting rights

The Offered Shares carry full dividend rights from 1 January 2011. The Annual General Meeting,which is held once annually within the first eight months of the financial year, decides on theappropriation of any net retained profit and thus on the full or partial disbursement thereof toshareholders. The Executive Board and Supervisory Board are required to submit arecommendation on the appropriation of profit, but the Annual General Meeting is not bound bysuch recommendation. Individual shareholders have no claim to the disbursement of dividendsunless the Annual General Meeting has passed a resolution to that effect (for details see thesection entitled ‘‘Earnings and Dividends per Share; Dividend Policy’’). The Annual General Meetingmay decide to make an in-kind distribution in addition to or instead of a cash distribution.

By law, claims to the payment of dividends generally become time-barred after three years, afterwhich time the Company may refuse to make any disbursement. Once the global certificatesrepresenting the Company’s shares are deposited with Clearstream Banking AG, Mergenthalerallee61, 65760 Eschborn, Germany (‘‘Clearstream’’), Clearstream will automatically credit any dividendsaccruing on the shares in the future to the securities accounts held at the respective custodianbanks. Domestic custodian banks are under a corresponding obligation to their customers.

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Shareholders whose shares are held in custodial accounts at foreign institutions should informthemselves about the procedure applicable at such institutions. Forefeited dividend claims shallaccrue to the Company.

In the event the Company is dissolved, the assets remaining after discharging the Company’sliabilities will accrue to the shareholders pursuant to § 271 German Stock Corporation Act(Aktiengesetz, ‘‘AktG’’) in proportion to the respective interest they hold in the Company’s sharecapital.

Shareholders have the right to subscribe for new shares issued pursuant to any future capitalincreases in a ratio proportionate to the respective interest they hold in the Company’s currentshare capital (pre-emptive right). No pre-emptive rights exist in the case of contingent capitalincreases; otherwise, pre-emptive rights may be excluded by resolution of the Annual GeneralMeeting or, if the Annual General Meeting so authorises, by resolution of the Executive Board withthe consent of the Supervisory Board (for further details see the section entitled ‘‘Information onthe Capital of the Company and Other Important Provisions of the Articles of Association – Generalprovisions on capital increases’’).

Form and representation of the shares

All of the Company’s shares are no-par value ordinary bearer shares, each representing a notionalinterest in the share capital of c1.00, and have been or will be issued based on the provisions ofthe German Stock Corporation Act (Aktiengesetz). The current share capital is represented by aglobal certificate without a dividend coupon, which has been deposited with Clearstream. Theshares originating from the capital increase against cash contributions still to be resolved by theCompany’s Annual General Meeting will likewise be represented by a global certificate without adividend coupon and deposited with Clearstream once the implementation of the capital increasehas been recorded in the commercial register. Pursuant to the Company’s Articles of Association,shareholders are not entitled to receive definitive share certificates for their respectiveshareholdings.

Delivery and settlement

The shares will be provided to the shareholders as co-ownership interests in the respective globalcertificate. Delivery of the Offered Shares against payment of the purchase price and thecustomary securities commissions is expected to take place on the second banking day after listingcommences. Shares purchased under the Offering may at the shareholder’s option be credited tothe securities account of a credit institution with Clearstream for the account of such investor or tothe securities account of a member in Euroclear Bank S.A./N.V., 1 Boulevard du Roi Albert II, B-1210 Brussels, as the operator of the Euroclear System, or to Clearstream Banking S.A.,42 Avenue JF Kennedy, L-1855 Luxembourg.

Transferability, lock-up

The shares are freely transferable in accordance with the legal provisions applicable to bearershares. With the exception of the restrictions set out in the sections entitled ‘‘The Offering – Lock-up’’ and ‘‘The Offering – Underwriting – Selling restrictions’’, there are no lock-up requirements orrestrictions on the transferability of the Company’s shares.

ISIN/ WKN/ Common Code/ Ticker symbol

ISIN ........................................................................................................................ DE000A1H8MU2WKN....................................................................................................................... A1H8MUCommon Code ....................................................................................................... 061180117Ticker symbol ......................................................................................................... ADD

Underwriting

Introduction

The Company, the Selling Shareholder and the Global Co-ordinator entered into an UnderwritingAgreement for the offer and sale of the shares under the Offering on 27 May 2011.

The Offering consists of a public offering in the Federal Republic of Germany and internationalprivate placements to institutional investors in certain other European jurisdictions outside theFederal Republic of Germany and outside the United States of America. The Offer Price will be set

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pursuant to a bookbuilding procedure. There are no minimum or maximum limits for the number ofshares that may be offered or sold in any specific country or region.

In the Underwriting Agreement, the Global Co-ordinator has undertaken subject to the satisfactionof certain conditions precedent such as the submission of legal opinions and the verification of thesubstantive accuracy of certain information contained in the Offering Memorandum and therepresentations and warranties made by the Company and the Selling Shareholder, to subscribefor the New Shares at the lowest issue price within the meaning of § 9 (1) AktG, and to underwritethese subject to the stipulation that the New Shares be offered to investors under the Offering. TheGlobal Co-ordinator will pay to the Company the difference between the Offer Price for the NewShares and the issue price (less agreed commissions and costs) on the date the New Shares aredelivered. The Global Co-ordinator has further undertaken, subject to the satisfaction of certainconditions precedent, to purchase up to 7,463,000 Existing Shares from the Selling Shareholderand sell these under the Offering. The Selling Shareholder has also undertaken to provide theGlobal Co-ordinator up to 1,516,950 Greenshoe Shares by way of a securities loan for the partialcoverage of over-allotments and, to the extent the Greenshoe Option is exercised, sell these to theGlobal Co-ordinator. The Global Co-ordinator will pay to the Selling Shareholder the Offer Price forthe Existing Shares sold (less agreed commissions) on the date the Existing Shares are deliveredto the investors and will pay the Offer Price for the Greenshoe Shares (less agreed commissions)within two banking days following the exercise of the Greenshoe Option, if and to the extent it isexercised.

Selling restrictions

In the Underwriting Agreement, the Global Co-ordinator has further undertaken to publicly offer theshares being offered by it exclusively in the Federal Republic of Germany, and to refrain fromoffering or selling the shares, either directly or indirectly, within the United States of America or toany U.S. person (‘‘U.S. Person’’) within the meaning of the U.S. Securities Act or for the accountof any such U.S. Person, except pursuant to an exemption from the registration and disclosurerequirements under U.S. securities laws and unless all other applicable U.S. laws have beenobserved. The shares have not been and will not be registered under the Securities Act and mayonly be offered or sold within the United States of America or to any U.S. Person pursuant toRegulation S or another exemption from the registration requirements under the Securities Act.

The sale of the shares in the United Kingdom of Great Britain and Northern Ireland (the ‘‘UnitedKingdom’’) is also subject to restrictions. In the Underwriting Agreement, the Global Co-ordinatorhas undertaken that it has only communicated or caused to be communicated and will onlycommunicate or cause to be communicated any invitation or inducement to engage in investmentactivity (within the meaning of § 21 of the Financial Services and Markets Act 2000 (‘‘FSMA’’))received by it in connection with the issue or sale of the Offered Shares in circumstances in which§ 21 (1) of the FSMA does not apply to the Company, and that it has complied and will complywith all applicable provisions of the FSMA with respect to all actions taken by the Global Co-ordinator in relation to the Offered Shares in, from or otherwise in connection with the UnitedKingdom. In addition, the Global Co-ordinator has undertaken, that during the Offering and prior tothe expiry of six months from the date on which the Offering is settled, it will not offer or sell anyshares of the Company nor take any other action that might constitute a public offering in theUnited Kingdom, except to persons whose ordinary activities involve them in acquiring, holding,managing and disposing of investments for the purpose of their businesses or otherwise incircumstances that would not result in an offer of transferable securities to the public within theUnited Kingdom within the meaning of § 102B of the Financial Services and Markets Act 2000.

The Global Co-ordinator has furthermore represented and warranted that it will not offer or sell,either directly or indirectly, the shares in Japan, Canada or Australia. The Global Co-ordinator hasalso undertaken to comply with the relevant laws of any and all countries in which it conductsselling activities in connection with the placement of the shares.

Global Co-ordinator and Bookrunner

The Global Co-ordinator and Bookrunner is CREDIT AGRICOLE CORPORATE AND INVESTMENTBANK, 9, quai du President Paul Doumer, 92920 Paris La Defense Cedex, Paris, France.

The Global Co-ordinator has maintained customary banking relations with the Company over thepast three financial years and may also continue to regularly perform services for the Companyand entertain normal business relations with it as a credit institution.

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Global Co-ordinator’s underwriting obligations

Subject to the satisfaction of certain conditions precedent, the Global Co-ordinator has undertakenin the Underwriting Agreement to underwrite an as yet unstipulated number of the Company’sshares being offered under this Offering and to sell them thereunder. At the present time, theGlobal Co-ordinator plans to underwrite all the shares being offered under this Offering.

The Company and the Selling Shareholder will pay the Global Co-ordinator commissions which arecustomary in the industry. The Company and the Selling Shareholder may also at their discretionpay the Global Coordinator a performance-based incentive fee.

Termination

The Underwriting Agreement provides that the Global Co-ordinator may terminate the UnderwritingAgreement under certain circumstances. Specifically, these include circumstances where

* following the execution of the Underwriting Agreement, a material deterioration occurs in theeconomic or legal situation of the Company or any of its affiliates which is relevant to theOffer Price or an event occurs which, in the Global Co-ordinator’s view, will have a materialadverse affect on the financial markets on which the Offered Shares are to be offered orsold;

* due to the publication of additional information or a supplement to the Offering documents, asubstantial number of investors revoke their orders;

* a material adverse change occurs which, in the view of the Global Co-ordinator, is so far-reaching or serious that the Global Co-ordinator believes it would be not recommendable orreasonable (particularly where the market price of the Company’s shares could be materiallyaffected as a result) to continue with the Offering or to allot the shares to investors or tradeshares on the primary or secondary markets; or

* a material adverse change occurs which, in the reasonable view of the Global Co-ordinator, isso far-reaching or serious that the Global-Co-ordinator believes it would be notrecommendable or reasonable to continue with the Offering or to allot the shares to investorsor trade shares on the primary or secondary markets. According to the UnderwritingAgreement, such a material adverse change will exist where:

* since the reporting dates controlling for the information contained in the Offeringdocuments, a material impairment or expected material impairment (such as theCompany’s business being damaged or impaired, irrespective of whether it does or doesnot have insurance coverage) has occurred which is not specified in the Offeringdocuments;

* since the reporting dates controlling for the information contained in the Offeringdocuments, there has been a change relating to the business, outlook, financial conditionand results of operations or assets of the Company or any of its affiliates or anydevelopment that may bring about a change which, in the sole assessment of the GlobalCo-ordinator, could be so material and adverse that it would not be recommendable,reasonable or practicable to implement the Offering or deliver the Offered Shares asprovided in the Offering documents;

* in the sole assessment of the Global Co-ordinator, there has been a material change inthe Company’s Executive Board;

* trading on any one of the Frankfurt, London or New York stock exchanges issuspended, either in whole or in part, a general moratorium on commercial bankingactivities is imposed in Frankfurt, London or New York, or securities settlement, paymentand/or booking services in Europe are substantially interrupted; or

* a material adverse change in general national or international financial, political,industrial, economic or legal conditions or in the conditions on the financial markets or inforeign exchange rates or any substantial outbreak or escalation of acts of war orterrorism occurs.

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If the Underwriting Agreement is terminated, the Offering will not take place. Any allotmentsalready made to investors will be invalidated. In such case, no claim to delivery exists. Claimsrelating to any subscription fees already paid and costs incurred by any investor in connection withthe subscription are controlled solely by the legal relationship between the investor and theinstitution to which the investor submitted its order. Any investors who have made short saleswould bear the risk of not being able to cover their positions.

Indemnification

The Company and the Selling Shareholder have undertaken in the Underwriting Agreement toindemnify the Global Co-ordinator against certain liabilities arising in connection with the Offering.

For further information on the Underwriting Agreement, specifically with respect to agreementsrelating to measures taken by the Global Co-ordinator in the context of the Offering in order tostabilise the market price of the Company’s shares (stabilisation measures) and undertakings bythe Company and the Selling Shareholder to refrain from taking any action that could affect themarket in the Company’s shares (lock-up agreements), see the sections entitled ‘‘The Offering –Stabilisation measures, Over-allotment and Greenshoe Option’’ and ‘‘The Offering – Lock-up’’.

Allotment

Allotment to retail investors

No agreements exist between the Company, the Selling Shareholder and the Global Co-ordinatoras to the allotment procedure. The Company, the Selling Shareholder and the Global Co-ordinatorwill comply with the ‘‘Principles for the allotment of share issues to private investors’’ (Grundsatzefur die Zuteilung von Aktienemissionen an Privatanleger) issued on 7 June 2000 by the ExchangeExpert Commission (Borsensachverstandigenkommission) at the German Federal Ministry ofFinance (Bundesministerium der Finanzen). In this regard, investors registered as qualifiedinvestors within the meaning of § 2 no. 6 d) and e) WpPG will be treated as institutional investors.The Company, the Selling Shareholder and the Global Co-ordinator will determine the specificdetails of the allotment procedure and publish these in accordance with the aforementionedallotment principles. The allotment to retail investors under the Offering will be performed inaccordance with uniform criteria, which apply to the Global Co-ordinator and all its affiliatedinstitutions.

Preferential allotment

Members of the Executive Board as well will be offered up to 75,000 (0.6%) of the total of11,629,950 Offered Shares. The Offered Shares subscribed by those persons eligible under thisplan will be allotted to them on a preferential basis. Otherwise, there are no provisions for anypreferential allotment of the Offered Shares to any specific class of persons.

Minimum allotment

Any minimum allotment will be determined once the order book has been closed and will bepublished in accordance with the allotment principles. This is not associated with any generalallotment.

Stabilisation measures, Over-allotment and Greenshoe Option

In connection with the placement of the Company’s shares and to the extent permitted by law(§ 20a (3) WpHG in conjunction with EU Commission Regulation 2273/2003 dated 22 December2003), Credit Agricole CIB, as stabilisation manager (the ‘‘Stabilisation Manager’’), may makeover-allotments and execute measures aimed at supporting the stock exchange or market price ofthe Company’s shares in order to off-set any sales pressure that may exist. The StabilisationManager is under no obligation to take stabilisation measures. Therefore, there is no guaranteethat any stabilisation measures will indeed be implemented. If stabilisation measures are taken,these may be terminated at any time without prior notice. Such measures may be taken from thedate the Company’s shares list for trading in order to support the initial exchange price, ifnecessary, and must be completed no later than 30 calendar days after such date (‘‘StabilisationPeriod’’). Stabilisation measures may cause the stock exchange or market price of the Company’sshares to be higher than would have been the case absent such measures. In addition, suchmeasures may temporarily result in a stock exchange or market price at a level that is notsustainable over the long term.

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With regard to potential stabilisation measures and to the extent permitted by law, in addition toorders for a total of 10,113,000 New and Existing Shares of the Company being offered, ordersmay be executed with investors for up to 1,516,950 additional shares of the Company (a maximumof 15% of the total New Shares and Existing Shares being offered) (‘‘Over-allotment’’). In order tocover these Over-allotments, the Selling Shareholder will provide Credit Agricole CIB prior toallotment up to 1,516,950 shares (up to 15% of the maximum total of New Shares and ExistingShares being offered) by way of a securities loan without charge.

In this context, the Selling Shareholder will grant Credit Agricole CIB COMMERZBANK an option topurchase up to 1,516,950 shares of the Company (up to 15% of the maximum total of New Sharesand Existing Shares being offered) from the Selling Shareholder at the Offer Price less agreedcommission (‘‘Greenshoe Option’’), thus satisfying the retransfer obligation under the securitiesloan. This Greenshoe Option expires 30 calendar days after trading in the Company’s sharescommences and may only be exercised to the extent that the Company’s shares have been placedby way of Over-allotment.

Within one week following the end of the Stabilisation Period, an announcement will be publishedin the Borsen-Zeitung as to whether or not any stabilisation measures were taken, the date onwhich the last stabilisation measure was taken, and the price range within which stabilisationmeasures were taken (for each date on which a stabilisation measure was taken). Theimplementation of the Over-allotment and the exercise of the Greenshoe Option and the datethereof, as well as the number and class of the relevant shares will also be promptly published inthe Borsen-Zeitung.

Stock exchange admission and commencement of trading

All the Company’s shares (entire share capital) are expected to be admitted to trading on theregulated market (regulierter Markt) and the regulated market sub-segment with additional post-admission listing obligations (Prime Standard) of the Frankfurt Stock Exchange on the firstbusiness day following expiry of the Offering Period, at the earliest. The decision on admission ofthe shares is the sole purview of the Frankfurt Stock Exchange. Trading in the shares on theFrankfurt Stock Exchange is planned to commence on the second exchange trading day followingexpiry of the Offering Period.

Designated Sponsors

Credit Agricole Cheuvreux S.A., 9, quai du President Paul Doumer, 92400 Courbevoie, France(‘‘CA Cheuvreux’’), and, from the fourth day of trading after publication of the termination of anystabilisation measures, as at the latest after the expiration of the Offering Period of 30 days, DZBANK AG, Deutsche Zentral-Genossenschaftsbank, Platz der Republik, 60265 Frankfurt am Main(‘‘DZ BANK’’), will be assuming the function of Designated Sponsors for the Company’s sharestrading on the Frankfurt Stock Exchange, although each is entitled to delegate this duty to anauthorised third party. The Designated Sponsors set binding prices for the purchase and sale ofthe shares, which is designed in particular to achieve higher liquidity in the trading of the shares.

Selling Agent

Viscardi AG, Brienner Strasse 1, 80333 Munich, will assume the function of selling agent.

Selling Shareholder

The Company’s Selling Shareholder is Cheverny Investments Limited, Malta (the ‘‘SellingShareholder’’). The Selling Shareholder will hold all the shares of the Company until such time asthis Offering is implemented and the capital increase against cash contributions still to be resolvedby the Company’s Annual General Meeting has been entered into the commercial register. Themajority shareholder of Cheverny Investments Limited is blu Finance Limited, Malta. blu FinanceLimited’s majority shareholder is bluO Malta Holding Limited, Malta. The majority shareholder ofbluO Malta Holding Limited is bluO SICAV-SIF, Luxembourg.

Lock-up

In the Underwriting Agreement, the Company has undertaken that, for a period of 12 months fromcommencement of trading in the Company’s shares, it will not, without the prior written consent ofthe Global Co-ordinator

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* directly or indirectly issue, sell or offer shares of the Company originating from any capitalincrease or held in Treasury, nor enter into any obligation to sell or otherwise dispose ofsame or announce any offer in relation thereto. Excepted herefrom are those shares issuedunder employee or management stock option plans described in this Offering Memorandum;

* directly or indirectly issue, sell or offer any securities or uncertificated rights convertible intoshares of the Company or representing a right to acquire shares of the Company, nor enterinto any obligation to sell or otherwise dispose of same or announce any offer in relationthereto;

* announce or implement any capital increase from authorised capital;

* propose any capital increase to its Annual General Meeting for resolution; or

* enter into any transactions (including transactions in derivatives) which constitute theeconomic equivalent of the aforementioned measures.

In the Underwriting Agreement, the Selling Shareholder has undertaken that it will not (a) initiate orconsent to the aforementioned measures of the Company, nor (b) for a period of twelve monthsfollowing commencement of trading in the Company’s shares (i) directly or indirectly sell, offer ormarket any shares or other securities or uncertificated rights convertible into or exchangeable forshares of the Company or representing a right to acquire shares of the Company, nor enter intoany obligation to sell or otherwise dispose of same or announce any offer in relation thereto; (ii)propose any capital increase to the Annual General Meeting nor consent to or support any suchproposal; or (iii) enter into any transactions (including transactions in derivatives) constituting theeconomic equivalent of the transactions set out in (i) and (ii) above, without the prior writtenconsent of the Global Co-ordinator.

Paying and registration agent

CACEIS Bank Deutschland GmbH, Lilienthalallee 34-36, 80939 Munich, has been appointed aspaying and registration agent at which any and all measures required with respect to the sharesmay be effected free of charge.

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REASONS FOR THE OFFERING, USE OF PROCEEDS, ISSUE COSTS ANDINTERESTED THIRD PARTIES

Issue proceeds and costs

The amount of the gross issue proceeds from the sale of the shares under the Offering dependson the number of shares actually placed and the final Offer Price.

Given this, the Company believes that based on an Offer Price of c11.25, which is the mid-point ofthe price range of c10.00-c12.50 it is possible to generate a total of approximately c113.8 million(excluding Greenshoe) in gross placement proceeds from the sale of the New Shares originatingfrom the capital increase and the Existing Shares. Assuming that all the Offered Shares (includingGreenshoe Shares) are placed and based on an Offer Price of c11.25 per share as the mid-pointof the price range within which orders per share may be placed, gross issue proceeds totallingc130.8 million will accrue to the Company and the Selling Shareholder. Given this, the Companywill generate gross issue proceeds of c29.8 million assuming full placement of the New Shares. Ifall of the shares offered are not sold, solely the number of Existing Shares held by the SellingShareholder may be reduced. The Selling Shareholder decides on the final number in co-ordinationwith the Global Co-ordinator and the Company.

Under the Offering, the net issue proceeds from the capital increase (gross issue proceeds fromthe sale of New Shares originating from the capital increase less the issue costs to be borne bythe Company) accrue to the Company. Up to 35% of certain costs related to the IPO which arisefor the Company shall be borne by the Selling Shareholder, but in no case more than c1.3 million(see ‘‘Related Party Transactions – On-charge of IPO costs to the Selling Shareholder’’). Based onan Offer Price of c11.25 per share, which reflects the mid-point of the price range within whichoffers per share may be placed, the Company will generate approximately c29.8 million in grossissue proceeds if the capital increase is implemented in full. Due to the fact that the costs arecontingent on the total number of shares placed and the Offer Price, which determine the amountof commissions, and considering the fact that part of the costs have to be borne by the SellingShareholder, it is not possible at present to reliably predict the amount of the costs which have tobe borne by the Company. The Company believes that the total costs it will incur will amount toapproximately c2.2 million based on an Offer Price of c11.25 per share as the mid-point of theprice range with which oders per share may be placed and an assumption of costs which arise forthe Company in the amount of c1.3 by the Selling Shareholder. This also includes the Global Co-ordinator’s placement and underwriting fee for the New Shares, which could be up to c0.8 millionbased on an Offer Price of c11.25 per share, which is the mid-point of the price range (notincluding any performance-based incentive fee paid at the Selling Shareholder’s discretion). Subjectto the aforementioned uncertainties, the Company believes that, based on an Offer Price ofc11.25, which is the mid-point of the price range and given these assumptions, it is possible togenerate approximately c27.6 million in net issue proceeds.

The net proceeds from the sale of the Existing Shares as well as any proceeds from the sale ofthe Greenshoe Shares accrue to the Selling Shareholder. Assuming the Greenshoe Option isexercised in full, and assuming an Offer Price of c11.25 per share as the mid-point of the pricerange, the net issue proceeds will total approximately c97.2 million. This takes into accountpayment of a placement and underwriting fee to the Global Co-ordinator for the Existing Sharesand the Greenshoe Shares totalling c2.5 million (not including any performance-based incentive feepaid at the Selling Shareholder’s discretion) as well as the assumption of costs which arise for theCompany in the amount of c1.3 million by the Selling Shareholder.

Reasons for the Offering and use of proceeds

The net issue proceeds accruing to the Company will be used to strengthen its equity capitalisationand to support the intended expansion of its business activities. Furthermore, the sale of theExisting Shares and, if the Greenshoe Option is exercised, the sale of its Greenshoe Shares willenable the Selling Shareholder to realise part of its investment.

The Company plans to use the net issue proceeds accruing to it from the placement of the NewShares to finance further internal and external growth, to implement and finance its strategicobjectives and for general business purposes. Specifically, the Company plans to use the net issueproceeds for the following projects presented here in the order of their priority:

1. To a large extent, financing further growth:

a. internal growth through the opening of new stores;

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b. external growth through the purchase of competitors and existing store chains;

2. as well as expanding the ‘‘shop-in-shop’’ concept to include external brands; and

3. to a lesser extent, financing the programme for modernising existing Adler stores.

To the extent and as long as the net issue proceeds have not been put toward any of theaforementioned uses, the Company intends to invest in bank deposits or other liquid investmentswith high asset quality.

The Selling Shareholder will receive the net proceeds from the sale of the Existing Shares and, ifthe Greenshoe Option is exercised, the net proceeds from the sale of the Greenshoe Shares, andwill use these for its own purposes.

Interested parties

In connection with the Offering and the listing of the Company’s shares (the ‘‘Transaction’’), CreditAgricole CIB is in a contractual relationship with Adler Modemarkte AG and the SellingShareholder. Credit Agricole CIB has been appointed by the Company and the Selling Shareholderas the Global Co-ordinator and the Bookrunner. It advises the Company on the Transaction andco-ordinates the structuring and execution thereof. Upon successful completion of the Transaction,the Global Co-ordinator will receive standard commissions. The Global Co-ordinator or its affiliatesmay also enter into business relations with the Company or render services to it in the ordinarycourse of business. The Global Co-ordinator has a personal financial interest in the success of theOffering as a result of these contractual relationships.

The Selling Shareholder as well as its shareholders have a personal interest in the Offering due tothe proceeds accruing directly or indirectly to them from the sale of their shares in the Company.

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EARNINGS AND DIVIDENDS PER SHARE; DIVIDEND POLICY

The share in the Company’s profit to be distributed to shareholders depends on the respectiveproportionate interest they hold in the share capital. When new shares are issued, a profit shareother than that set out in § 60 (2) sentence 3 AktG may be stipulated for such new shares.

The resolution on the distribution of any dividends for a given financial year and, if applicable, theamount and date of such distribution must be adopted at the Annual General Meeting in thefollowing financial year. The Annual General Meeting adopts its resolutions on the basis ofproposals made by the Executive Board and the Supervisory Board. Under German law, dividendsmay be distributed from the Company’s net retained profits only. Net retained profits are calculatedon the basis of the Company’s (non-consolidated) annual financial statements, which are preparedin accordance with the accounting rules of the German Commercial Code (Handelsgesetzbuch,‘‘HGB’’). German commercial law on preparing financial statements deviates in material respectsfrom IFRS. When determining the amount available for distribution, the Company’s (non-consolidated) net profit for the period must be adjusted for profits/losses carried forward from theprevious financial year as well as withdrawals from or transfers to reserves. The law requires thatcertain reserves must be created and that such reserves must be eliminated from the calculation ofthe net retained profits available for distribution.

The Company’s Executive Board prepares the annual financial statements and, as a rule, they areapproved jointly by the Executive Board and the Supervisory Board. When allocating the net profit,they are authorised to transfer, in whole or in part, the net profit for the period to other reserves,less the amounts transferred to the statutory reserve and any loss carry-forward. It is notpermissible to transfer more than one-half of the net profit for the year if other reserves exceedone-half of the share capital or would exceed one-half as a result of the transfer. If the ExecutiveBoard and the Supervisory Board are unable to reach agreement on the adoption of the annualfinancial statements, or if the Executive Board and Supervisory Board resolve to defer the decisionon adopting the annual financial statements to the Annual General Meeting, then the AnnualGeneral Meeting will adopt the annual financial statements.

Due to the remaining interest it will hold in the Company after the Offering is implemented, theSelling Shareholder could be in a position to influence the Company’s dividend policy (see ‘‘RiskFactors – The Selling Shareholder may continue to exercise significant influence over AdlerModemarkte AG and the interests of the Selling Shareholder could conflict with those of the rest ofthe shareholders’’).

The Company’s ability to distribute dividends in the future will depend on the future profits of theCompany, its economic and financial situation and other factors. Such factors specifically includethe liquidity requirements of the Company, its future prospects, market development and the taxand legislative environment and other general conditions. Since the business activities of Adler areperformed by consolidated subsidiaries of the Company, the Company’s ability to pay dividends willalso depend on whether its consolidated subsidiaries generate profits, the amount of profitsgenerated, and whether they distribute them to the Company. There are no dividend restrictions orspecial procedures for dividend payments to shareholders resident outside of Germany. For furtherdetails on the taxation of dividend payments to shareholders resident outside of Germany, pleasesee ‘‘Taxation in the Federal Republic of Germany – Taxation of the Shareholders – Taxation ofdividends’’ and ‘‘– Shareholders resident outside of Germany’’.

To the extent the Company has net retained profits in the future it plans, subject to the decision ofits Annual General Meeting, to distribute its shareholders a reasonable and customary dividendover the medium term. The Company will pursue a dividend policy whereby dividends will increasein line with the increase in earnings per share, with a payout ratio at the level of listed referencecompanies. Some of the Company’s net retained profits and/or financial resources are intended tobe used for financing Adler’s expansion, in particular by expanding the national and over themedium term international network of stores and for financing acquisitions when the opportunitypresents itself.

Pursuant to a profit and loss transfer agreement with AMODA GmbH in force from 18 November2004 until 31 December 2010, the Company was obligated to transfer its entire profit, i.e., its entireannual net profit as determined in accordance with the provisions of the German Commercial Code(Handelsgesetzbuch, ‘‘HGB’’) less any loss carry-forward from the prior year, to AMODA GmbH. Infinancial year 2008, the Company had no net retained profit available for distribution due to its netannual loss of c2,780 thousand, which was absorbed by the shareholder at that time pursuant to

43


an existing profit and loss transfer agreement. Likewise, no net retained profit was available fordistribution in the financial years 2009 and 2010 due to the Company’s contractual obligation totransfer its annual net profit. In the financial years 2009 and 2010, the Company transferred c2,094thousand and c18,372 thousand, respectively, to its shareholder at that time.

The following overview summarises consolidated net profit in accordance with IFRS and thenotional consolidated net loss for the period per share of the Company as well as the annual netprofit/loss for the financial year (before the loss offset/profit transfer) in accordance with HGB andthe dividends paid for the financial year 2008, 2009 and 2010. In each case it was assumed forpurposes of comparison that the Company’s share capital was divided into 15,860,000 equalshares, each representing c1.00, such that the number of units on which the calculation was basedcorresponded to the number of shares into which the Company’s share capital was divided prior tothe implementation of the Capital Increase for the IPO.

Financial year2008 2009 2010

Consolidated net profit/loss for the period in accordance withIFRS (in c thousand) (audited) ............................................ -59,245 -7,278 27,422

Consolidated net profit/loss for the period per share in theCompany (in c) (unaudited) ................................................. -3.74 -0.46 1.73

Net annual profit/loss for the financial year (before the lossoffset/profit transfer) for the Company in accordance withHGB (in c thousand) (audited) ............................................. -2,780 2,094 18,372

Dividend per share in c (unaudited) ......................................... — — —

44


DILUTION

The net carrying amount of Adler Modemarkte AG’s consolidated tangible assets (total assets lessall intangible assets and non-current and current liabilities) amounted to c29,193 thousand as at31 March 2011 based on the unaudited 2011 Consolidated Interim Financial Statements. Thisrepresents approximately c1.84 per share (calculated on the basis of 15,860,000 outstandingshares of the Company in issue as of the date of this Offering Memorandum; all data unaudited).

On the assumption that the net issue proceeds accruing to the Company amount to approximatelyc27.6 million (see also ‘‘Reasons for the Offering, Use of Proceeds, Issue Costs and InterestedThird Parties – Issue proceeds and costs’’) and on the assumption that the Offering which is thesubject of this Offering Memorandum is fully implemented by 31 December 2010, the restated netcarrying amount of Adler Modemarkte AG’s consolidated tangible assets as at 31 March 2011,based on the unaudited 2011 Consolidated Interim Financial Statements would have amounted toapproximately c56.8 million or approximately c3.07 per share (unaudited; calculated on the basis ofc18,510,000 shares of the Company in issue following full implementation of the capital increaseagainst cash contributions still to be resolved by the Company’s Annual General Meeting. Thisrepresents an increase in the net carrying amount of Adler Modemarkte AG’s consolidated tangibleassets of approximately c1.23 (or approximately 66.8%) per share for the Selling Shareholder. Bycontrast, the Offer Price paid by an investor under these circumstances would exceed the netcarrying amount of Adler Modemarkte AG’s consolidated tangible assets by approximately c8.18 (orapproximately 266.5%) per share. An investor will therefore be diluted by 72.7% (all dataunaudited).

45


CAPITALISATION, INDEBTEDNESS AND BORROWING REQUIREMENTS

Capitalisation and indebtedness

The following table shows the actual capitalisation and indebtedness of Adler under IFRS as at31 March 2011, as well as that adjusted for the proceeds from the Offering of the New Shares.The capitalisation of the Company will change following the Offering due to the net issue proceedsaccruing to the Company depending on the extent to which the capital increase still to be resolvedby the Company’s Annual General Meeting is implemented. The adjusted figures in the rightcolumn of the following table are based on the assumption that net issue proceeds accruing to theCompany from this Offering amount to c27.6 million (see also the section entitled ‘‘Reasons for theOffering, Use of Proceeds, Issue Costs and Interested Third Parties – Issue proceeds and costs’’).

As at 31 March 2011

Before theOffering

(unaudited)

After theOffering1)

(unaudited)

e’000 e’000

Current liabilities................................................................................. 92,725 92,725of which guaranteed .......................................................................... — —of which secured ............................................................................... 251 251of which unsecured / non-guaranteed ............................................... 92,474 92,474

Non-current liabilities ......................................................................... 44,200 44,200of which guaranteed .......................................................................... — —of which secured ............................................................................... 4,295 4,295of which unsecured / non-guaranteed ............................................... 39,905 39,905

Total liabilities ..................................................................................... 136,925 136,925Equity ................................................................................................... 32,316 59,916

of which subscribed capital................................................................ 15,860 18,510of which capital reserve ..................................................................... 101,001 125,951of which other reserves ..................................................................... — —of which net retained profits .............................................................. -84,545 -84,545of which noncontrolling interests....................................................... — —

Total liabilities and equity .................................................................. 169,241 196,841

1) Adjustment under the assumption that based on an Offer Price of c11.25 per share, which reflects the mid-point of the pricerange within which orders per share may be placed, the Company receives net issue proceeds from the Offering of the NewShares amounting to c27.6 million (see also ‘‘Reasons for the Offering, Use of Proceeds, Issue Costs and Interested ThirdParties – Issue proceeds and costs‘‘), and that rather than the proceeds being used to pay down liabilities, they are held assight or term deposits with banks or are invested in other current assets until they are used to make the planned investments.

46


The following table shows Adler’s current net financial liabilities (i.e. current financial liabilities lesscash and cash equivalents and current financial receivables) and net indebtedness (current netfinancial liabilities and non-current financial liabilities) as at 31 March 2011:

Net financial debt

As at31 March

2011(unaudited)

c’000

Liquidity ........................................................................................................................ 13,902of which cash-in-hand ............................................................................................... 3,719of which balances with banks ................................................................................... 10,183of which cash equivalents ......................................................................................... —of which securities .................................................................................................... —

Current financial receivables* ....................................................................................... 3,559Current financial liabilities*............................................................................................ 78,134

of which liabilities to banks ....................................................................................... —share of non-current liabilities due within one year................................................... 10,072of which other current financial liabilities .................................................................. 68,062

Current net financial liabilities .................................................................................. 60,673Non-current financial liabilities*..................................................................................... 38,119

of which non-current liabilities to banks .................................................................... —of which securitised liabilities .................................................................................... —of which other non-current liabilities.......................................................................... 38,119

Net financial debt ....................................................................................................... 98,792

* Financial receivables include all the items reported as current financial assets in the Company’s IFRS Interim ConsolidatedFinancial Statements as at 31 March 2011. Financial liabilities include all the items reported as financial liabilities in theCompany’s IFRS Interim Consolidated Financial Statements as at 31 March 2011 (including liabilities from finance leases).

As at 31 March 2011, Adler had the following contingent liabilities, commitments and other financialobligations:

As at31 March

2011

c’000(unaudited)

Utilised guarantee lines* ............................................................................................... 560Rental payment guarantee* .......................................................................................... 613Other financial obligations from rental and lease obligations ....................................... 172,736Other financial obligations ............................................................................................ 13,946

* contingent liabilities

47


The table below provides an overview of Adler’s assets as at 31 March 2011:

As at 31 March 2011

Total amount(unaudited)

Of whichtransfer or

assignment assecurity or

secured by landcharge

(unaudited)

c’000 c’000

Non-current assets ..................................................................... 67,989 3,987of which intangible assets ......................................................... 3,123 0of which deferred taxes............................................................. 50,708 613of which investment property .................................................... 10,142 0of which income tax receivables ............................................... 3,374 3,374of which other receivables and other assets............................. — 0

642 0Current assets ............................................................................ 101,252 0

of which inventories .................................................................. 78,281 0of which trade receivables ........................................................ 1,935 0of which other receivables and other assets............................. 6,871 0of which financial assets available for sale ............................... 263 0

of which cash and cash equivalents............................................. 13,902 0

Total ............................................................................................. 169,241 3,987

Borrowing requirements

In order to finance the intended growth of Adler (see the section entitled ‘‘Business – Strategy’’),borrowing may become necessary, especially to the extent that key investments, such as thoserelating to organic and inorganic growth, require financial resources in excess of the net issueproceeds received by the Company from the Offering of the New Shares.

Although the Company believes that it will have sufficient equity and if applicable debt resourcesfollowing implementation of the Offering to fund its current and planned investments, it can give noguarantee that Adler will be in a position to conclude any necessary financing arrangements onfavourable terms, or at all. If Adler were not in a position to secure the necessary financing, theCompany could be forced to change its investment plans or to incur higher than expected financingcosts.

Working capital statement

In the Company’s opinion, Adler has sufficient working capital for a minimum of twelve monthsfollowing the date of this Offering Memorandum to meet payment obligations falling due.

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SELECTED FINANCIAL INFORMATION

The consolidated financial statements were prepared in accordance with the accountingrequirements of the International Accounting Standards Board (IASB) – International FinancialReporting Standards (‘‘IFRS’’), as adopted by the EU – using the nature of expense method andcontain the audited financial information in accordance with IFRS for the respective financial yearand corresponding comparative figures for the previous financial year. The Adler Group’sconsolidated financial statements and consolidated interim financial statements will continue to beprepared in accordance with IFRS in the future.

Unless otherwise indicated, the financial information in this Offering Memorandum has beenextracted or derived from the audited consolidated financial statements of the Company inaccordance with IFRS as at 31 December 2010 (the ‘‘2010 IFRS Consolidated FinancialStatements’’), the audited consolidated financial statements of the Company in accordance withIFRS as at 31 December 2009 (the ‘‘2009 IFRS Consolidated Financial Statements’’ andtogether with the 2010 IFRS Consolidated Financial Statements the ‘‘IFRS Consolidated FinancialStatements’’) or the unaudited consolidated interim financial statements of the Company inaccordance with IFRS, as at 31 March 2011 (the ‘‘2011 IFRS Consolidated Interim FinancialStatements’’). The financial information presented in the tables below represents a selection of thefinancial information for the Adler Group contained in the financial statements and is quoted inthousands of euros (‘‘e thousands’’) and rounded to whole numbers in accordance with normalcommercial practice in order to improve readability. Figures quoted as a percentage have beenrounded to one decimal place in accordance with normal commercial practice. Due to the rounding,the figures presented in the tables do not always add up exactly to the particular total amountgiven.

The consolidated financial information and business information presented represent a summary ofthe financial information contained in this Offering Memorandum. Investors should base theirinvestment decisions on an examination of the Offering Memorandum as a whole.

49


Selected information relating to the consolidated income statement


c’000(audited)

in % ofrevenue

(unaudited)c’000

(audited)

in % ofrevenue

(unaudited)c’000

(audited)

in % ofrevenue

(unaudited)c’000

(unaudited)

in % ofrevenue

(unaudited)c’000

(unaudited)

in % ofrevenue

(unaudited)

Revenue ................................ 474,603 405,846 444,809 84,249 91,906Other operating income .......... 23,404 4.9 17,709 4.4 8,172 1.8 2,240 2.7 2,601 2.8Cost of materials .................... -239,602 -50.5 -205,277 -50.6 -210,360 -47.3 -43,790 -52.0 -47,321 -51.5Personnel expenses .............. -128,173 -27.0 -80,553 -19.8 -74,996 -16.9 -17,778 -21.1 -19,286 -21.0Other operating expenses....... -157,412 -33.2 -125,251 -30.9 -129,776 -29.2 -32,321 -38.4 -34,502 -37.5EBITDA** ............................... -27,180 -5.7 12,474 3.1 37,849 8.5 -7,400 -8.8 -6,602 -7.2Depreciation and amortisation -20,379 -4.3 -15,521 -3.8 -13,565 -3.0 -3,596 -4.3 -3,360 -3.7Impairment .............................. -7,852 -1.7 -2,322 -0.6 — — — — — —EBIT** ..................................... -55,411 -11.7 -5,369 -1.3 24,284 5.5 -10,996 -13.1 -9,962 -10.8Other interest and similar

income 786 1,919 3,538 773 20Interest and similar expenses . -6,977 -5,022 -4,121 -1,099 -914Net finance costs ................. -6,191 -3,103 -583 -326 -894Profit/loss from operations . -61,602 -8,472 23,701 -11,322 -10,856Income taxes........................... 2,357 -149 4,778 67 2,006Profit/loss from continuing

operations .......................... n.a. -8,621 28,479 -11,255 -8,850Profit/loss from discontinued

operations............................ n.a. 1,343 -1,057 -1,059 —Consolidated net profit (+)/

loss (-) for the year............ -59,245 -7,278 27,422 -12,314 -8,850of which attributable to non-

controlling interests.............. — — — — —of which attributable to equity

holders of AdlerModemarkte GmbH ............. -59,245 -7,278 27,422 -12,314 -8,850

Consolidated totalcomprehensive income..... -59,245 -7,278 27,422 -12,314 -8,850



The table below shows the development of EBITDA, EBIT and EBITDA adjusted for non-recurringitems in financial years 2008, 2009 and 2010 as well as in the first three months of financial years2010 and 2011:


31 March2008* 2009* 2010* 2010 2011

c’000(audited)

c’000(audited)

c’000(audited)

c’000(unaudited)

c’000(unaudited)

EBITDA** ............................ -27,180 12,474 37,849 -7,400 -6,602EBITDA margin (in % of

revenue) (unaudited)....... -5.7 3.1 8.5 -8.8 -7.2EBIT** ................................. -55,411 -5,369 24,284 -10,996 -9,962EBIT margin (in % of

revenue) (unaudited)....... -11.7 -1.3 5.5 -13.1 -10.8Adjusted EBITDA

(unaudited)*** ................ -1,392 13,348 — — —Adjusted EBITDA margin (in

% of revenue)(unaudited)...................... -0.3 3.3 — — —


50



*** Adjusted for non-recurring items: In financial year 2008 in particular non-recurring items relating to the restructuringprogramme were incurred which had a material effect on the results of the Company for that financial year. The non-recurringitems consisted of the costs of contract terminations resulting from the early termination of rental agreements for unprofitableAdler stores, personnel expenses for social compensation plans and termination benefits, and consultancy expenses forrestructuring advisers. The expenses were offset by income from the reversal of restructuring provisions recognised in the prioryear. Non-recurring items relating to the restructuring programme were also incurred in financial year 2009. They were muchlower than in the previous year, however. For example, only personnel-related restructuring expenses were incurred. Theexpenses were offset by income from the reversal of restructuring provisions recognised in the previous year. There were nomaterial non-recurring items in financial year 2010. An adjusted EBITDA has therefore not been presented for financial year2010. The detailed reconciliation of EBITDA for financial years 2008 and 2009 to the adjusted EBITDA for those financial yearswas as follows:

Financial yearEBITDA and adjusted EBITDA 2008 2009


EBITDA reported in the income statement (audited) ........................................................ -27,180 12,474Costs of contract terminations ........................................................................................... +12,915 —Expenses for staff reductions ............................................................................................ +11,132 +4,355Expenses for restructuring advice ..................................................................................... +1,854 —Income from the reversal of restructuring provisions......................................................... -113 -3,481

Adjusted EBITDA................................................................................................................. -1,392 13,348

The table below shows the analysis of revenue (net) by geographical region for financial years2008, 2009 and 2010, as well as for the first three months of financial years 2010 and 2011:

Financial year 3 months as at 31 MarchRevenue 2008* 2009* 2010* 2010 2011

c’000(audited)

in % ofrevenue

(unaudited)c’000

(audited)

in % ofrevenue

(unaudited)c’000

(audited)

in % ofrevenue

(unaudited)c’000

(unaudited)

in % ofrevenue

(unaudited)c’000

(unaudited)

in % ofrevenue

(unaudited)

Germany ................................. 394,824 83.2 332,014 81.8 356,195 80.1 67,854 80.5 73,213 79.7Austria ..................................... 65,880 13.9 60,873 15.0 74,599 16.8 13,416 15.9 15,468 16.8Luxembourg ............................ 13,899 2.9 12,959 3.2 14,015 3.1 2,979 3.5 3,224 3.5

Revenue ................................. 474,603 100.0 405,846 100.0 444,809 100.0 84,249 100.0 91,906 100.0

* Information for financial years 2009 and 2010 has been extracted from the 2010 IFRS Consolidated Financial Statements.Unless marked as unaudited, the financial information for financial year 2008 has been extracted from the 2009 IFRSConsolidated Financial Statements. The comparability of the financial information presented in this table for financial years2008 and 2009 is limited. For further details, please see ‘‘Management’s Discussion and Analysis of Financial Condition andResults of Operations – Background to the financial information contained in the Offering Memorandum and factors affectingits comparability’’.

The table below shows the analysis of the figures for gross sales, which have been generated byor derived from Adler’s stock management system and unless otherwise stated are unaudited, byproduct group for financial years 2008, 2009 and 2010, as well as for the first three months offinancial years 2010 and 2011:

Financial year 3 months as at 31 MarchSales 2008* 2009* 2010* 2010 2011

c’000(unaudited)

in % ofgross sales(unaudited)

c’000(unaudited)


c’000(unaudited)


c’000(unaudited)


c’000(unaudited)


Womenswear (unaudited) ....... 290,909 51.7 246,432 50.6 260,805 48.8 54,546 52.0 57,567 50.3Menswear (unaudited) ............ 166,756 29.6 146,297 30.1 150,019 28.1 28,860 27.5 29,595 25.8Lingerie (unaudited) ................ 55,536 9.9 48,846 10.0 54,118 10.1 10,422 9.9 11,539 10.1Supplementary assortment

(unaudited) .......................... 49,828 8.9 45,052 9.3 69,792 13.1 11,073 10.6 15,813 13.8

Gross sales (unaudited) ....... 563,030 486,627 534,734 104,901 114,514

Reconciliation to net revenue(unaudited)**........................ -88,427 -80,781 -85,378 -20,652 -22,608

(Net) revenue ......................... 474,603*** 405,846*** 444,809*** 84,249 91,906

* Unless marked as unaudited, the audited financial information for financial years 2009 and 2010 has been extracted from the2010 IFRS Consolidated Financial Statements. Unless marked as unaudited, the audited financial information for financial year2008 has been extracted from the 2009 IFRS Consolidated Financial Statements. The comparability of the financialinformation presented in this table for financial years 2008 and 2009 is limited. For further details, please see ‘‘Management’sDiscussion and Analysis of Financial Condition and Results of Operations – Background to the financial information containedin the Offering Memorandum and factors affecting its comparability’’.

51



*** These figures have been extracted from the 2009 and 2010 IFRS consolidated financial statements and verified.

Selected information relating to the consolidated balance sheet

31 December 31 March2008* 2009* 2010* 2011

c’000(unaudited)

c’000(unaudited)

c’000(unaudited)

c’000(unaudited)

ASSETSNon-current assets ..................................... 88,891 72,644 67,501 67,989Current assets ............................................ 101,033 132,325 95,214 101,252Total equity and liabilities ....................... 189,924 204,969 162,715 169,241

EQUITY AND LIABILITIESEquity.......................................................... 25,546 69,274 41,167 32,316Non-current liabilities .................................. 63,886 54,520 47,165 44,200Current liabilities ......................................... 100,492 81,175 74,383 92,725Total equity and liabilities ....................... 189,924 204,969 162,715 169,241


Selected information relating to the consolidated statement of cash flows

Financial year 3 months to 31 March2008* 2009* 2010* 2011 2010

c’000(audited)

c’000(audited)

c’000(audited)

c’000(unaudited)

c’000(unaudited)

Net cash from (+)/used in (-) operatingactivities............................................ -22,523 7,192 25,800 -11,845 -13,640

Net cash from (+)/used in (-) investingactivities............................................ 4,033 -37,842 -16,759 -255 -1,987

Net cash from (+)/used in (-) financingactivities............................................ 18,210 42,424 -13,076 -3,295 -3,427

Cash and cash equivalents at end ofperiod .............................................. 25,217 36,991 32,956 21,308 13,902


Additional selected information

The table below gives an overview of the number of Adler stores as at 31 December 2008,31 December 2009, 31 December 2010 and 31 March 2011:

As at 31 December 31 March2008 2009 2010 2011

Adler stores (unaudited)...................................... 120 123 135 137

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS

The following discussion and analysis of the assets, liabilities, financial position, and profit or loss(financial condition and results of operations) of the Adler Group and of the Company refers,except where expressly indicated otherwise, to the audited IFRS consolidated financial statementsof the Company for financial years 2009 and 2010, both of which were certified with an unqualifiedauditors’ report and are reproduced elsewhere in this Offering Memorandum.

Financial information about the Adler Group in this section relating to the reporting date31 December 2010 or the financial year ended 31 December 2010 is taken from the 2010 IFRSConsolidated Financial Statements.

Financial information about the Adler Group in this section relating to the reporting date31 December 2009 or the financial year ended 31 December 2009 is also taken from the 2010IFRS Consolidated Financial Statements. The latter contain comparative figures for financial year2009 which reflect the sale of MOTEX Mode-Textil-Service Logistik und Management GmbH,Horselgau (‘‘MOTEX’’) with effect as at 30 September 2010 and the classification of its activities asdiscontinued operations from 1 January 2009 in the consolidated income statement as a result ofthe decision to sell MOTEX taken in financial year 2010.

Financial information about the Adler Group in this section relating to the reporting date31 December 2008 or the financial year ended 31 December 2008 is taken from the 2009 IFRSConsolidated Financial Statements, which contain comparative figures as at 31 December 2008and for the financial year ended 31 December 2008. In contrast to the 2010 IFRS ConsolidatedFinancial Statements and the comparative figures included for financial year 2009, no distinctionwas made between continuing operations and discontinued operations in preparing the consolidatedincome statement in the 2009 IFRS Consolidated Financial Statements and the comparative figuresincluded for financial year 2008, as the decision to sell MOTEX had not yet been taken at thatpoint in time.

Financial information about the Adler Group in this section relating to the reporting date 31 March2011 or the three-month periods ended 31 March 2010 and 31 March 2011 is taken from theunaudited 2011 IFRS Consolidated Interim Financial Statements and is unaudited.

The comparability of the financial information contained in the following discussion is thereforelimited. For further details, please see ‘‘Management’s Discussion and Analysis of FinancialCondition and Results of Operations – Background to the financial information contained in theOffering Memorandum and factors affecting its comparability‘‘.

The financial information contained in the Financial Section of this Offering Memorandum cannotserve as the basis for conclusions about the future financial condition and results of operations ofthe Adler Group or of the Company or for a period other than the respective period covered bythat financial information.

The following discussion should be read together with the sections entitled ‘‘Risk Factors’’,‘‘Capitalisation, Indebtedness and Borrowing Requirements’’ and ‘‘Business’’, the financialinformation contained in the Financial Section of this Offering Memorandum, the explanations tothat financial information and the financial information contained elsewhere in this OfferingMemorandum.

Overview of business

As one of the leading textile retailers in Germany, Austria and Luxembourg, and with more than 60years of tradition and a high level of customer loyalty, Adler is, in its own estimation, the marketleader among textile retailers for customers over 45 in Germany in the value price segment. Adleroffers a both broad and extensive range of womenswear, menswear and lingerie. With asupplementary range consisting of accessories, footwear, kidswear and babywear, traditional dress,sportswear and hardware products, Adler aims to round off its product portfolio and to exploitexisting cross-selling potential in its stores. Adler is currently focusing on large-space retailconcepts, i.e., the space occupied by the stores it operates is usually more than 1,000 m2. Adler’sproduct portfolio consists mainly of own brands, the collections for which are designed andcompiled to a large extent by Adler itself, and then produced by external manufacturers. This issupplemented by a selected range of external brands. The products are distributed via a broadnetwork of currently 139 stores in Germany, Austria and Luxembourg, as well as an online store.

53



Adler intends to continue with its assortment policy and to continue to gear its communicationstrategy and the layout of its stores to customers over 45. It will also increasingly focus on winningas new customers those that are moving into the ever-growing age group of the over 45s. In thisway, Adler aims to further expand its position as market leader, according to its own estimates, inthe primary segment it serves. Adler has already successfully implemented this strategy in somestores and has attracted an increasing number of new customers through the offering of selectedexternal brands such as s.Oliver, Tom Tailor, Street One, Cecil, OneTouch and Mexx, as well asmore stringent visual merchandising and extensive modernisation of the shop fronts and interiordesign of its stores. Adler plans to continuously expand this concept to further stores. In addition,Adler intends to expand its store network both organically and inorganically, in order to exploiteconomies of scale and broaden its market position. As part of its organic growth, Adler plans toopen around 20 to 35 new stores each year in Germany and Austria between the years 2011 and2013, depending on the market situation and market environment. It would also like to selectivelyuse opportunities that arise due to the withdrawal of department store chains and small- andmedium-sized retailers. In the medium term, Adler is also considering international expansion intobordering countries of Germany and Austria with a similar age structure and physiognomy of thepopulation. In future, Adler would also like to achieve cost benefits, on the one hand, and furtheroptimise internal processes, on the other, through the use of innovative technologies. For example,Adler is presently in the testing stage for the Group-wide introduction of RFID (radio-frequencyidentification), an electronic goods tracking and tagging system. By setting up an online shop in2010, Adler also implemented a multi-channel sales strategy that aims to attract in particular newcustomers entering the over 45 age group as well as older, less mobile customers.

For more detailed information relating to Adler’s business activities, please see the section headed‘‘Business’’.

Group of consolidated companies

Group of companies consolidated in the 2009 IFRS Consolidated Financial Statements

In addition to the Company as the parent company of the Group, the following companies werefully consolidated as subsidiaries in the 2009 IFRS Consolidated Financial Statements:

Adler GroupShareholding

in %

ADLER Atelier Moden GmbH, Haibach........................................................................ 100.0ADVERS Versicherungsmakler GmbH, Haibach.......................................................... 100.0MOTEX Mode-Textil-Service Logistik und Management GmbH, Horselgau ................ 100.0Adler Modemarkte Gesellschaft m.b.H., Vosendorf/Austria ......................................... 100.0Adler Mode S.A., Foetz/Luxembourg ........................................................................... 100.0

ALASKA GmbH & Co. KG, Munich, in which the Group has no shareholding, was also included inthe consolidated financial statements as a special purpose entity on the basis of a rentalagreement with Adler Modemarkte GmbH (relating to an administration building in Haibach).

Group of companies consolidated in the 2010 IFRS Consolidated Financial Statements

The Company sold its shareholding in MOTEX with effect as at 30 September 2010.

Adler Atelier Moden GmbH was merged with ADVERS Versicherungsmakler GmbH with effect asat 30 June 2010, on the basis of a merger agreement dated 29 December 2010 entered in thecommercial register of the absorbing company on 17 January 2011.

54


By a purchase agreement dated 17 December 2010, Adler Modemarkte Gesellschaft m.b.H.,Ansfelden (formerly: Vosendorf)/Austria (also referred in the following as ‘‘Adler ModemarkteAustria’’), acquired all of the shares in F.W. Woolworth Co. Gesellschaft m.b.H., Ansfelden/Austriawith effect as at 31 December 2010.

ADVERS Versicherungsmakler GmbH, Haibach, was renamed ADVERS GmbH by means of achange to its Articles of Association entered in the relevant commercial register on 19 May 2010.

The group of companies consolidated by the Adler Group as at 31 December 2010, in addition tothe Company as the parent company of the Group, therefore comprised the following companiesfully consolidated as subsidiaries:

Adler GroupShareholding

in %

ADVERS GmbH, Haibach ............................................................................................ 100.0Adler Modemarkte Gesellschaft m.b.H., Ansfelden/Austria .......................................... 100.0Adler Mode S.A., Foetz / Luxembourg ......................................................................... 100.0F.W. Woolworth Co. Gesellschaft m.b.H., Ansfelden (formerly: Vosendorf)/Austria

(following change of name and registered office now:Adler Asset GmbH, Ansfelden/Austria)* ................................................................... (100.0)

* Sub-subsidiary of Adler Modemarkte AG; the percentage shareholding in brackets relates to the shares held by AdlerModemarkte Gesellschaft m.b.H., Ansfelden/Austria, in the capital of this company.

In addition, ALASKA GmbH & Co. KG, Munich, in which the Group has no shareholding, wasincluded in the consolidated financial statements as a special purpose entity in accordance withSIC 12 on the basis of a rental agreement with Adler Modemarkte GmbH (relating to anadministration building in Haibach).

There had been no change in the group of companies consolidated by the Adler Group as at31 March 2011.

Background to the financial information contained in the Offering Memorandum and factorsaffecting its comparability

The Company sold its shareholding in MOTEX, which provides transport and logistics services forthe Adler Group, with effect as at 30 September 2010. In consequence, a distinction is madebetween continuing operations and discontinued operations in the consolidated income statement inthe 2010 IFRS Consolidated Financial Statements and the 2011 IFRS Consolidated InterimFinancial Statements (including the comparative figures presented for financial year 2009 and thefirst quarter of financial year 2010). The profit or loss after tax of MOTEX for the first nine andthree months of financial year 2010 and the net profit or loss of MOTEX for financial year 2009and the net profit or loss of MOTEX in the first quarter of 2010 are reported in each case as aseparate item in the consolidated income statement in the 2010 IFRS Consolidated FinancialStatements and the 2011 IFRS Consolidated Interim Financial Statements (including thecomparative figures presented for financial year 2009 and the first quarter of financial year 2010).The other items in the consolidated income statement for financial year 2010 (including thecomparative figures presented for financial year 2009 and the first quarter of financial year 2010),on the other hand, reflect only the continuing operations.

In contrast, no distinction was made between continuing operations and discontinued operations inthe 2009 IFRS Consolidated Financial Statements (including the comparative figures presented forfinancial year 2008) as the decision to sell MOTEX had not yet been taken at the balance sheetdate 31 December 2009.

In order to improve the comparability of the development of Adler’s business in financial years2009 and 2010, the following discussion and analysis of the results of operations of Adler forfinancial years 2009 and 2010 is therefore based on the financial information contained in theconsolidated income statement in the 2010 IFRS Consolidated Financial Statements (including thecomparative figures presented for financial year 2009). Those financial statements distinguishbetween continuing operations and discontinued operations for both financial years.

In contrast, the financial information relating to Adler’s results of operations in financial year 2008,which is taken from the comparative figures for the prior year in the consolidated income statement

55


in the 2009 IFRS Consolidated Financial Statements, does not distinguish between continuingoperations and discontinued operations.

The assets and liabilities of MOTEX are no longer included in the consolidated balance sheet as at31 December 2010 in the 2010 IFRS Consolidated Financial Statements as a result of its sale witheffect as at 30 September 2010. The cash flows of MOTEX up to the date of sale, including theproceeds of the sale of MOTEX and after deducting the cash funds disposed of in that connection,are included in the consolidated statement of cash flows in the 2010 IFRS Consolidated FinancialStatements. In contrast, the assets and liabilities and the cash flows of MOTEX are included in fullin the comparative figures for financial year 2009 presented in the consolidated balance sheet andthe consolidated statement of cash flows in the 2010 IFRS Consolidated Financial Statements, andalso in the consolidated balance sheet and the consolidated statement of cash flows in the 2009IFRS Consolidated Financial Statements (including the comparative figures presented for financialyear 2008).

The assets and liabilities of Adler Asset GmbH, Ansfelden/Austria (formerly: F.W. Woolworth Co.Gesellschaft m.b.H.), acquired on 31 December 2010, are included for the first time in theconsolidated balance sheet as at 31 December 2010 in the 2010 IFRS Consolidated FinancialStatements.

In the light of these considerations

* the comparability of the financial information in the following discussion and analysis of Adler’sresults for operations for financial years 2008 and 2009,

* the comparability of the financial information in the following discussion and analysis of Adler’snet assets for financial years 2009 and 2010 and

* the comparability of the financial information in the following discussion and analysis of Adler’sfinancial position for financial years 2009 and 2010

are to some extent limited. The revenues of the Adler Group for financial year 2009 including theactivities of MOTEX reported in the consolidated income statement in the 2009 IFRS ConsolidatedFinancial Statements therefore amount to c410,824 thousand, while the revenues of the AdlerGroup for financial year 2009 excluding the activities of MOTEX reported in the consolidatedincome statement in the 2010 IFRS Consolidated Financial Statements amount to c405,846thousand. The EBITDA of the Adler Group for financial year 2009 including the activities ofMOTEX reported in the consolidated income statement in the 2009 IFRS Consolidated FinancialStatements amounts to c14,652 thousand, while the EBITDA for financial year 2009 excluding theactivities of MOTEX reported in the consolidated income statement in the 2010 IFRS ConsolidatedFinancial Statements amounts to c12,474 thousand. The consolidated profit or loss after tax, onthe other hand, remains unchanged.

Significant factors affecting the financial condition and results of operations

In the opinion of the Company, the following factors have contributed significantly to thedevelopment of the business and the results of operations of the Adler Group in the period since1 January 2008 and are expected to continue to have a significant influence on the results ofoperations.

Market and sector-related factors

Demographic change

The deep-rooted process of demographic change, observable for many years in most industrialnations including the markets in Germany, Austria and Luxembourg served by the Adler Group,has continued over the whole period covered by the historical financial information of the AdlerGroup reproduced in the Financial Section of this Offering Memorandum. In the Company’sopinion, the number of people over 45 years of age will increase further in the coming years as aresult of this process of demographic change. This is confirmed by the estimates of the GermanFederal Statistical Office (Statistisches Bundesamt Deutschland), according to which the proportionof people in Germany aged 60 and over will rise steadily from 26.2% in 2010 to 38.9% in 2050(source: German Federal Statistical Office, Population of Germany through 2050, per 2007). Peopleover 45 years of age represent an age group with particularly high purchasing power. This isshown by the fact that for many types of goods, including clothing, customers over 50 years of ageaccount for almost 50 percent of consumer expenditure (source: Federal Ministry of Family Affairs,Senior Citizens, Women and Youth (Bundesministerium fur Familie, Senioren, Frauen und Jugend),

56


Age: The driving force behind the economy, Final Report, July 2007, p. 2). These customers attachgreater importance to high quality and the comfortable fit of their clothing. In the light of thereorientation of its business strategy to meet the needs and expectations of customers aged 45and over, Adler has once again benefited strongly since the middle of 2009 from this demographicdevelopment and anticipates that this trend will continue in the future.

Effects of the general financial and economic crisis

Consumer expenditure on clothing and shoes rose steadily from 2005 to 2008 in the markets inGermany, Austria and Luxembourg served by Adler. From the second half of 2008 onward,however, the business environment in the clothing sector deteriorated due to the effects of thegeneral financial and economic crisis. Expenditure by private households on clothing declined againin 2009 to a small extent. At the same time, as a result of the general financial and economiccrisis and the associated rise in unemployment and reluctance to spend money on consumeritems, consumers initially turned in particular to products in the lower price range in 2009. Incontrast, 2010 was characterised by a slow but steady recovery in the economy. Given acontinuing recovery in the markets and an increase in consumers’ average income, marketcommentators expect to see a movement by customers back to higher quality goods (MintelGermany 2010, p. 17).

Division of the clothing market with growth of providers in the value price segment

The clothing market has shown an increasing tendency in the recent past to divide into clothing foryoung, fashion-conscious customers on the one hand and clothing for older customers on theother. Companies in the clothing market therefore face the challenge of winning over the growingnumber of younger customers with an ever increasing interest in fashion, and also continuing toretain an older customer group which is more conservative in its choice of clothing. This divergingdevelopment in the fashion market is being intensified further by demographic change in Germany.It is true, for example, that a greater willingness to invest in clothing has become apparent on thepart of younger customers. But with falling birth rates and increasing life expectancy, the proportionof older customers with greater purchasing power has risen constantly. In addition, the market haswitnessed an increasing polarisation between high-price fashion and luxury items on the one handand budget fashion on the other. In contrast to the discount segment itself, the growth in the valueprice segment is mainly the result of attracting customers from the mid-price range, given thatconsumers are increasingly looking for high-quality products with an attractive trade-off betweenprice and performance. In the Company’s opinion, this trend will continue to dictate the structure ofthe market in the next few years as well. It is true that in 2009, due to the economic crisis and theresulting rise in unemployment and reluctance of consumers to spend, European consumers initiallyturned in particular to products in the lower price range. However, 2010 was characterised by aslow but steady recovery in the economy. This was accompanied by customers turning back tohigher-value products. In the Company’s opinion, this benefited market participants in the valueprice segment in particular. The Company expects that this trend will continue in the medium term.

Cost structure determined by cost of materials

The cost structure of companies in the clothing trade is mainly determined by the cost of materials.The cost of materials ratio of the Adler Group in all three financial years under considerationamounted to around 50%. The amount of the cost of materials is mainly determined by thepurchase price for the textiles in Adler’s product range. The latter depends in turn to a great extenton the cost of producing the textiles, in particular the costs incurred in production for wages andraw materials, especially cotton. Since the beginning of 2009, the price of cotton has risenconstantly and at an increasing rate. Even if the substantial rise in the price of cotton has not yethad a significant effect on the purchasing costs of companies in the clothing trade, the Companybelieves that that will be the case to a much greater extent in the future than during the periodcovered by the historical financial information reproduced in the Financial Section of this OfferingMemorandum. At the same time, Adler anticipates that it will be able to pass the higher purchasingcosts on to its customers.

Seasonal fluctuations

The sales, profits and financing requirements of retailers in the apparel sector are affected byseasonal fluctuations. For example, sales and profits in the second half of the year, especially inthe fourth quarter of the calendar year, which corresponds to the financial year for Adler in contrastto certain other exchange-listed companies in the textile industry due to sales of winter goods with

57


a higher average selling price per product, are generally better than in the first half of the financialyear, especially in the first quarter. Moreover, the product range in the spring and summer monthsincludes a comparatively higher proportion of cheaper products such as T-shirts. As a result of theseasonal nature of demand for clothing, Adler’s peak periods for purchases of goods and thereforehigher financing requirements are in the months of February and March, and August andSeptember. Adler endeavours to reduce its peak financing requirements and also to manage itsliquidity by agreeing long-term target payment dates, with payment due in some cases only afterthe products have been sold.

For the Adler Group, these seasonal factors that are typical of the sector resulted in the AdlerGroup generating a consolidated net loss in both the first quarter of financial year 2010 and thefirst quarter of financial year 2011. At the same time, inventories rose from c56,749 thousand as at31 December 2010 to c78,281 thousand as at 31 March 2011. Current liabilities also increasedfrom c74,383 thousand as at 31 December 2010 to c92,725 thousand as at 31 March 2011 whichmainly reflected higher trade payables due to the growth in inventories. The Company anticipatesthat over the remainder of financial year 2011 the Adler Group will be able to make up for thesenegative seasonal effects typical of the sector at least as well as in previous years, especially asboth the revenue and earnings of the Adler Group in the first quarter of financial year 2011 weresignificantly better than in the first quarter of financial year 2010, despite the fact that exceptionallythe Easter business in this financial year fell into the second quarter.

Increasing importance of Internet trading

The Internet has fundamentally changed consumers’ buying patterns over the past few years. Boththe in-store trade and the mail order business have therefore felt it necessary to implement multi-channel sales strategies. With this aim, many providers use the Internet to sell their products inaddition to their traditional sales channels. At the same time, e-commerce is not only an ever moreimportant sales channel but also a fundamental means of obtaining new customers. Against thisbackground, Adler launched the Adler Online-Shop in 2010 as an additional sales channelalongside the stores. Adler anticipates that Adler’s positive image will carry over to the Online-Shopand, conversely, that customers who have become aware of Adler on the Internet will also visit theAdler stores in greater numbers.

Company-related factors

Focus on specific customer groups

From 2007 onward, Adler initiated a rejuvenation strategy under the management at that time andrefocused its portfolio towards products with a significantly higher fashion grade and a fit thatemphasised the figure. At the same time, the marketing strategy was tailored to appeal to younger,fashion-oriented customers, involving significant expenditure. After this strategy had proven to beunsuccessful and had resulted in substantial losses in financial year 2008, the newly appointedmanagement of Adler corrected this rejuvenation strategy by orienting the fit and fashion grade ofAdler’s product portfolio back towards the needs and expectations of the growing 45+ age groupand adding selected external brands. In this context, the Adler Group is able to benefit from thefact that its target customer group consists predominantly of ‘‘fashion followers’’ who only react tofashion trends once they are established and recognisable on the street and in the media. Sincethis customer group is not particularly concerned with the latest clothing trends, Adler is notaffected by price markdowns until a later stage than many other businesses in the apparel sectorand to a lesser extent. Thanks to the high degree of visibility of customer data available via theAdler customer card, Adler was able to communicate the revised strategy to its customers within ashort time by means of targeted mailing and sales initiatives. Adler is therefore well informed aboutits customer group’s needs with respect to the fit of their clothing and their purchasing behaviourand considers itself to be in a position to manage its purchases and sales in the best possiblemanner as a result. A multi-channel strategy was also implemented with the launch of the AdlerOnline Shop. As a result of these strategic measures, the current Adler management was able torestore the Adler Group to operating profitability as early as the fourth quarter of 2009.

Expansion strategy

As part of the reorientation of Adler’s business activities carried out from 2007 onward by themanagement at that time, a restructuring plan was introduced, in addition to the rejuvenationstrategy subsequently corrected by the current management, which provided for the closure and insome cases drastic redesign of stores, among other things. The number of Adler stores fell

58


accordingly from 130 at 1 January 2008 to 120 at 31 December 2008. This strategy also turnedout to be unsuccessful and was therefore corrected by the current Adler management from thesecond half of 2009 onward. Consequently, the number of Adler stores rose to 123 as at31 December 2009 and to a total of 135 at 31 December 2010 as a result of re-opened and newlyopened stores. At the same time, the sales density, i.e. gross sales per square metre of net salesarea, improved from around c2,500 in financial year 2009 to around c2,600 in financial year 2010while the gross profit generated per square metre of net sales area increased from around c1,000in financial year 2009 to around c1,100 in financial year 2010. The Company’s intention is tosteadily expand its existing store network in the core markets of Germany and Austria, as amethod of consolidating its market position and achieving economies of scale in purchasing, salesand marketing. Four new stores were opened during the period from 31 December 2010 up to thedate of this Offering Memorandum. Rental agreements have also already been signed for severalstores in additional locations. Negotiations are currently underway with respect to further rentalagreements for additional stores.

Restructuring

The current Adler management launched a comprehensive restructuring programme immediatelyfollowing its appointment in 2009. As part of this restructuring programme, it was possible toachieve significant reductions in marketing expenses, by focusing the marketing activities on the45+ age group, and in personnel expenses, by negotiating a company agreement and removinglevels of the hierarchy while at the same time freeing up the sales staff from administrative duties.These reductions were achieved without harming the business activities of Adler as a result of thecost savings made.

Sale of MOTEX

The Company sold its shareholding in MOTEX, which provides transport and logistics services forthe Adler Group, with effect as at 30 September 2010. The main effects of the disposal of MOTEXwere a significant reduction in personnel expenses and a small decline in the revenue of the AdlerGroup. In addition, the Adler Group no longer has to bear the costs of operating and maintainingMOTEX’s high-rack warehouse which has therefore also led to a modest reduction in its otheroperating expenses. On the other hand, the Adler Group’s reported cost of materials has risen asa result of the sale of MOTEX. Moreover, the Adler Group now also has to report the shipping andtransport costs it is charged by MOTEX within other operating expenses. Prior to the disposal ofMOTEX, these were eliminated on consolidation as intra-Group expenses. For more detailedinformation on the effects of the sale of MOTEX on the financial condition and results of operationsof the Adler Group, please see ‘‘Background to the financial information contained in the OfferingMemorandum and factors affecting its comparability’’.

Profit and loss transfer agreement between the Company and AMODA GmbH

A profit and loss transfer agreement and tax grouping for income tax purposes were in placebetween the Company and AMODA GmbH in all three financial years under review. As a result,the Company as a member of the tax group had no liability to income tax over the whole periodunder consideration. The profit and loss transfer agreement was terminated on 30 September 2010with effect as at 31 December 2010. Accordingly, there has been no grouping of companies for taxpurposes since 1 January 2011. Since no liability to pay tax arose in the hands of the Companyuntil the cessation of the grouping for tax purposes on 31 December 2010, no tax expense wasrecorded up to that date. Following the termination of the grouping for tax purposes as at31 December 2010, the effects of actual taxes have been included in the financial statements forthe first time from 1 January 2011 with the result that the Company is expected to incur asignificantly higher tax expense in future periods than in the three financial years under review.

Non-recurring items in financial year 2008

Financial year 2008 was impacted in particular by non-recurring items relating to the restructuringprogramme which had a material effect on the results of the Adler Group for that financial year.The non-recurring items consisted of the costs of contract terminations resulting from the earlytermination of rental agreements for unprofitable Adler stores, personnel expenses for socialcompensation plans and termination payments, and consultancy expenses for restructuringadvisers. The expenses were offset by income from the reversal of restructuring provisionsrecognised in the prior year. The non-recurring items led to a material reduction in the EBITDA of

59


the Adler Group in financial year 2008. In addition, impairment losses were recorded in financialyear 2008 that had a negative effect on the EBIT of the Adler Group in that financial year.

Non-recurring items in financial year 2009

Non-recurring effects resulting from the restructuring programme were also incurred in financialyear 2009 but were significantly lower than in the previous year. For example, personnel-relatedrestructuring expenses were incurred again in financial year 2009. But these expenses werebalanced by the reversal of restructuring provisions recognised in the prior year, with the result thatthe impact of the non-recurring items on the EBITDA of the Adler Group in financial year 2009 wasnot as severe as in financial year 2008. Moreover, impairment losses incurred in financial year2009 were also lower than in the previous year, so that EBIT for financial year 2009 did not sufferfrom the effects of non-recurring items as much as in the prior year.

Costs of preparation for the IPO

The preparation for the Company’s IPO, in particular the associated development of an IFRSaccounting system and corresponding IT facilities as well as a satisfactory risk monitoring andmanagement system, resulted in particular in higher personnel expenses and other operatingexpenses. These costs affected earnings for financial year 2010 and will also affect earnings forfinancial year 2011 to the extent that they cannot be offset directly against equity.

Significant accounting policies

The Company prepared its consolidated financial statements for financial year 2009 in accordancewith the requirements of the International Accounting Standards Board (IASB), London, inconformity with International Financial Reporting Standards (IFRS), as adopted by the EU. In orderto ensure equivalence with consolidated financial statements prepared in accordance with theGerman Commercial Code (Handelsgesetzbuch, ‘‘HGB’’), the consolidated financial statements forfinancial year 2010 were additionally prepared in accordance with the provisions of § 315a HGB.The interpretations issued by the IFRS Interpretations Committee (formerly the InternationalFinancial Reporting Interpretations Committee and the Standing Interpretations Committee) werealso applied. The Company’s management based the preparation of the financial statements on theassumption that the Adler Group will continue as a going concern. The requirements of IFRS wereapplied for the first time in the preparation of the 2009 IFRS Consolidated Financial Statements.The consolidated financial statements are prepared in euros at the balance sheet date of AdlerModemarkte AG, i.e., 31 December of each calendar year. The companies included in theconsolidated financial statements also have 31 December as their balance sheet dates. Theaccounting policies that were applied for the purpose of preparing the 2009 and 2010 IFRSConsolidated Financial Statements and that, in the opinion of the Company, were significant aredescribed in the following paragraphs:

* Current income taxes: The applicable rate of income tax is calculated on the basis of thetax laws in force on the balance sheet date for the countries in which the Company’ssubsidiaries operate. Adequate and appropriate provisions are recognised for expected taxpayments on the basis of these tax laws. Until 31 December 2010, a profit and loss transferagreement and tax grouping for income tax purposes were in place between the Companyand its shareholder AMODA GmbH with the result that the Company as a member of the taxgroup had no liability to income tax. Since 1 January 2011, the tax grouping has no longerbeen in place. Since no liability to pay tax arose in the hands of the Company up to31 December 2010, no tax expense was recorded until the cessation of the grouping for taxpurposes. Following the termination of the grouping for tax purposes as at 31 December2010, the effects of actual taxes have been included in the financial statements for the firsttime from 1 January 2011.

* Deferred taxes: Deferred taxes are recognised for all temporary differences between the taxbases of the assets and liabilities and their carrying amounts in the IFRS ConsolidatedFinancial Statements. No deferred taxes were recognised in respect of differences betweenthe tax bases and the amounts currently included in the financial statements within theCompany during the period of the grouping of companies for income tax purposes, since thereversal of these differences would not have resulted in a tax effect. As a consequence of thetermination of the tax grouping between the Company and AMODA GmbH as at 31 December

60


2010, deferred taxes were required to be recognised for the first time as at 31 December2010 in respect of differences in measurement between the IFRS carrying amounts and thetax bases of assets and liabilities.

* Inventories: Merchandise accounted for as inventories is generally carried at the lower ofcost and net realisable value. Net realisable value is the amount of the estimated saleproceeds achievable in the normal course of business less the necessary variable costs ofsale. The cost of production includes all directly attributable costs and appropriate portions ofnecessary overheads and depreciation in addition to direct materials and production costs.Cost is determined using the weighted average method. Borrowing costs have not beenincluded in the cost of inventories.

* Pension obligations: The Adler Group has a number of different benefit plans. They includeboth defined benefit and defined contribution plans. Defined contribution plans are post-employment plans under which an enterprise pays fixed contributions into a separate entity(such as a fund or insurance arrangement) and has no legal or constructive obligation to payfurther contributions, even if the fund or the entitlements from the insurance agreemententered into do not have sufficient assets to pay all employee benefits relating to employeeservice in the current reporting period and prior periods. A defined benefit plan is a post-employment plan other than a defined contribution plan. The agreements underlying thedefined benefit plans provide for different benefits within the Group depending on theparticular subsidiary. These mainly consist of pension entitlements once the relevantpensionable age is reached and one-off payments on cessation of employment.

* Termination benefits: Termination benefits are paid when an employee is dismissed prior tothe normal retirement date or when an employee leaves employment voluntarily in return for atermination payment. The Group recognises termination benefits immediately when it isdemonstrably and irrevocably committed to terminate the employment of current employeeson the basis of a detailed formal plan which cannot be withdrawn, or when it is demonstrablyrequired to pay termination benefits on the voluntary termination of employment byemployees. Payments falling due more than twelve months after the balance sheet date arediscounted to their present value. The entitlements to termination benefits are reported underprovisions for personnel expenses. This item also includes portions of the entitlements arisingfrom the German provisions relating to partial retirement arrangements.

* Financial liabilities: Discount entitlements not yet utilised by customers are also reported incurrent financial liabilities. Customers are awarded these entitlements whenever they make apurchase using the Adler customer card. Within a specifically defined period, customers canoffset these discount entitlements against a subsequent purchase or have the amount paidout in cash. The amount included in financial liabilities represents customers’ discountentitlements not yet utilised at the balance sheet date.

* Leases: Leases are classified as finance leases if substantially all of the risks and rewards ofownership are transferred to the lessee under the terms of the lease. All other leases areclassified as operating leases. Non-current assets that are rented or leased and where therelevant Group company has economic ownership (finance leases) are recognised at thepresent value of the minimum lease payments or the lower fair value and depreciated overtheir useful lives in accordance with the requirements of IAS 17 (Leases). The correspondingliability to the lessor is reported in the balance sheet as a finance lease obligation underliabilities from finance leases. The lease payments are apportioned between the financecharge and the reduction of the lease obligation so as to produce a constant periodic rate ofinterest on the remaining balance of the liability.

* Recognition of income and expenses: Revenue represents the fair value of theconsideration received or receivable for the sale of goods and services in the ordinary courseof business. Revenue is reported net of VAT and after deducting rebates and discounts.Customers’ entitlements to refunds relating to goods delivered are recorded in the incomestatement once the relevant invoices have been examined. Sales which give the customer theright to acquire loyalty points are accounted for initially as a liability in the amount of the fairvalue of the loyalty points using the deferred revenue method in accordance with IFRIC 13and are recognised as revenue only when the points are utilised or expire. The correspondingobligation from loyalty points not yet utilised is reported under deferred income. Within theAdler Group, a loyalty points programme required to be accounted for in accordance with the

61


provisions of IFRIC 13 was offered only for a short time during the period under review up tothe end of April 2009. The related liability in respect of the deferral of revenue is included indeferred income as at 31 December 2008. The programme expired at the end of April 2009and loyalty points not utilised by that time were therefore recognised as revenue. No furtherprogrammes were offered during the period under review.

Where customers making purchases with the Adler customer card acquire an entitlement to aparticular discount, the discount is recorded as a reduction in revenue. The liability is reportedwithin financial liabilities. The liability is reversed when the discount is utilised. If customersallow their discount entitlements to expire, the amount not utilised is reported as revenue.

Revenue and other operating income is generally recognised only when the services havebeen performed or the goods or products have been delivered and the risks of ownershiphave transferred to the customer. Retail sales are settled in cash or using an EC or creditcard. The card company’s charges are recorded in other operating expenses. The Group’sbusiness policy is that the end user acquires its products with a right of return. This right ofreturn is quantified on the basis of historical amounts and deducted from revenue.

Expenses are recognised when the goods or services are utilised or when the expense isincurred. This also applies to the recognition of advertising expenses. The latter are recordedin accordance with the provisions of IAS 38 when the service – in this case the provision ofadvertising services – has been performed for the Adler Group and not at the later date whenthe Adler Group is conducting the relevant advertising campaigns.

* Impairment: Assets with indefinite useful lives are not depreciated or amortised; they aretested for impairment annually or whenever there are indications that an asset may beimpaired. Assets subject to depreciation or amortisation are reviewed for impairment ifrelevant events or changes in circumstances indicate that the carrying amount may no longerbe recoverable. Any impairment loss recognised is equal to the excess of the carrying amountover the recoverable amount. The recoverable amount is the higher of the fair value of theasset less costs to sell and the value in use. For the purposes of the impairment test, assetsare combined at the lowest level for which cash flows can be separately identified (cash-generating units). If an impairment charge is subsequently reversed, the carrying amount ofthe asset (of the cash-generating unit) is increased to the newly estimated recoverableamount. For this purpose, the higher carrying amount resulting from the increase may notexceed the amount that would have been determined, net of depreciation or amortisation, ifno impairment charge had been recognised in respect of the asset (the cash-generating unit)in prior years. A reversal of an impairment charge is recognised immediately in profit or loss.Impairment charges recognised in respect of goodwill may not be reversed.

* Stock appreciation rights: Stock appreciation rights (SARs – cash-settled share-basedpayment) are measured at their fair value at the date of grant. The fair value is recorded aspersonnel expenses over the vesting period. The obligations arising from SARs arerecognised as provisions and measured at their fair value at the interim reporting date. Theexpenses are recognised over the vesting period. The fair value of the SARs is determinedon the basis of mathematical calculations. Management is required to make assumptions forthis purpose with respect to the probability that particular events affecting the value will occur.Significant factors affecting the value are the achievement of the target share prices on whichthe value is based and the date of the IPO.

Please refer to the annual financial statements reproduced in the Financial Section for informationrelating to the standards and interpretations required to be applied for the first time to theCompany’s 2008 consolidated financial statements in the context of the initial adoption of IFRS,and for details of the additional accounting policies applied in the preparation of the IFRSConsolidated Financial Statements of the Adler Group.

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Adler’s results of operations in financial years 2008, 2009 and 2010, and in the first quarter offinancial years 2010 and 2011 (IFRS)

The Company’s income statement was prepared using the nature of expense method. The tablebelow shows the items in the Company’s consolidated income statement in accordance with IFRSin financial years 2008, 2009 and 2010 and in the first three months of financial years 2010 and2011:


c’000(audited)

in % ofrevenue

(unaudited)c’000(audited)

in % ofrevenue


in % ofrevenue

(unaudited)c’000

(unaudited)

in % ofrevenue

(unaudited)c’000

(unaudited)

in % ofrevenue

(unaudited)

Revenue .......................................... 474,603 405,846 444,809 84,249 91,906Other operating income................... 23,404 4.9 17,709 4.4 8,172 1.8 2,240 2.7 2,601 2.8Cost of materials ............................. -239,602 -50.5 -205,277 -50.6 -210,360 -47.3 -43,790 -52.0 -47,321 -51.5Personnel expenses........................ -128,173 -27.0 -80,553 -19.8 -74,996 -16.9 -17,778 -21.1 -19,286 -21.0Other operating expenses ............... -157,412 -33.2 -125,251 -30.9 -129,776 -29.2 -32,321 -38.4 -34,502 -37.5EBITDA** ........................................ -27,180 -5.7 12,474 3.1 37,849 8.5 -7,400 -8.8 -6,602 -7.2Depreciation and amortisation......... -20,379 -4.3 -15,521 -3.8 -13,565 -3.0 -3,596 -4.3 -3,360 -3.7Impairment ...................................... -7,852 -1.7 -2,322 -0.6 — — — — — —EBIT** ............................................. -55,411 -11.7 -5,369 -1.3 24,284 5.5 -10,996 -13.1 -9,962 -10.8Other interest and similar income 786 1,919 3,538 773 20Interest and similar expenses ......... -6,977 -5,022 -4,121 -1,099 -914Net finance costs .......................... -6,191 -3,103 -583 -326 -894Profit/loss from operations .......... -61,602 -8,472 23,701 -11,322 -10,856Income taxes................................... 2,357 -149 4,778 67 2,006Profit/loss from continuing

operations............................... n.a. -8,621 28,479 -11,255 -8,850Profit/loss from discontinued

operations ................................ n.a. 1,343 -1,057 -1,059 —Consolidated net profit (+)/

loss (-) for the year ................ -59,245 -7,278 27,422 -12,314 -8,850of which attributable to non-

controlling interests .................. — — — — —of which attributable to equity

holders of Adler ModemarkteGmbH....................................... -59,245 -7,278 27,422 -12,314 -8,850

Consolidated totalcomprehensive income ......... -59,245 -7,278 27,422 -12,314 -8,850

* Unless marked as unaudited, the financial information for financial years 2009 and 2010 has been extracted from the 2010IFRS Consolidated Financial Statements. Unless marked as unaudited, the financial information for financial year 2008 hasbeen extracted from the 2009 IFRS Consolidated Financial Statements. The comparability of the financial informationpresented in this table for financial years 2008 and 2009 is limited. For further details please see ‘‘Background to the financialinformation contained in the Offering Memorandum and factors affecting its comparability’’.


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Information relating to the individual items in the consolidated income statement is provided in thefollowing sections:

Revenue

The table below shows the geographical distribution of revenue (net) in financial years 2008, 2009and 2010 and in the first three months of financial years 2010 and 2011:

Financial year 3 months as at 31 MarchRevenue 2008* 2009* 2010* 2010 2011

c’000(audited)

in % ofrevenue

(unaudited)c’000

(audited)

in % ofrevenue


in % ofrevenue

(unaudited)c’000

(unaudited)

in % ofrevenue

(unaudited)c’000

(unaudited)

in % ofrevenue

(unaudited)

Germany .................. 394,824 83.2 332,014 81.8 356,195 80.1 67,854 80.5 73,213 79.7Austria...................... 65,880 13.9 60,873 15.0 74,599 16.8 13,416 15.9 15,468 16.8Luxembourg ............. 13,899 2.9 12,959 3.2 14,015 3.1 2,979 3.5 3,224 3.5

Revenue .................. 474,603 100.0 405,846 100.0 444,809 100.0 84,249 100.0 91,906 100.0


The revenue of the Adler Group declined by 14.5% from c474,603 thousand in financial year 2008to c405,846 thousand in financial year 2009 and rose by 9.6% to c444,809 thousand in financialyear 2010. In the first quarter of financial year 2011, revenue increased by a further 9.1 % fromc84,249 thousand in the first quarter of financial year 2010 to c91,906 thousand in the first quarterof financial year 2011. Revenue in all three financial years was generated almost entirely fromsales of goods. The main focus of the Adler Group’s business activities during the whole of theperiod under review was the domestic German market. Adler generated more than 80% of itsrevenue in that market in all three financial years under consideration. However, there was a risingtrend in the proportion of revenue generated outside Germany which rose from 16.8% in financialyear 2008 to 18.2% in financial year 2009 to 19.9% in financial year 2010. This reflected theincreasing internationalisation of Adler’s business operations, notably as a result of the acquisitionand redesigning of existing stores in Austria in 2009 and 2010.

As a consequence of this, the proportion of the total revenue of the Adler Group represented byrevenue generated outside Germany rose to 20.3% in the first quarter of financial year 2011. Thiswas reflected in a decline in the proportion of the total revenue of the Adler Group accounted forby revenue generated in Germany to 79.7% in the first quarter of financial year 2011.

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Gross sales in financial years 2008, 2009 and 2010, the figures for which were generated by orderived from Adler’s stock management system and are unaudited, were distributed as followsbetween the womenswear, menswear and lingerie product groups and the supplementaryassortment mainly comprising accessories, shoes, kidswear and babywear, traditional dress andhardware products:

Financial year 3 months as at 31 MarchSales 2008* 2009* 2010* 2010 2011

c’000(unaudited)


c’000(unaudited)


c’000(unaudited)


c’000(unaudited)


c’000(unaudited)


Womenswear(unaudited)......... 290,909 51.7 246,432 50.6 260,805 48.8 54,546 52.0 57,567 50.3

Menswear(unaudited)......... 166,756 29.6 146,297 30.1 150,019 28.1 28,860 27.5 29,595 25.8

Lingerie (unaudited) . 55,536 9.9 48,846 10.0 54,118 10.1 10,422 9.9 11,539 10.1Supplementary

assortment(unaudited)......... 49,828 8.9 45,052 9.3 69,792 13.1 11,073 10.6 15,813 13.8

Gross sales(unaudited) ....... 563,030 486,627 534,734 104,901 114,514

Reconciliation to netrevenue(unaudited)** ...... -88,427 -80,781 -85,378 -20,652 -22,608

(Net) revenue.......... 474,603*** 405,846*** 444,809*** 84,249 91,906

* Unless marked as unaudited, the audited financial information for financial years 2009 and 2010 has been extracted from the2010 IFRS Consolidated Financial Statements. Unless marked as unaudited, the audited financial information for financial year2008 has been extracted from the 2009 IFRS Consolidated Financial Statements. The comparability of the financialinformation presented in this table for financial years 2008 and 2009 is limited. For further details please see ‘‘Background tothe financial information contained in the Offering Memorandum and factors affecting its comparability’’.


*** These figures have been extracted from the 2009 and 2010 IFRS Consolidated Financial Statements and verified.

Comparison of financial years 2008 and 2009

The decline of 14.5% in revenue from c474,603 thousand in financial year 2008 to c405,846thousand in financial year 2009 was largely a consequence of the unsuccessful strategy of themanagement at that time of focusing Adler’s activities on younger customer groups and of theclosure of stores or reductions in their selling area. As a result, the fall in revenue in financial year2009 affected all regions in which the Adler Group has operations and was also reflected atproduct level. The revenue figure for financial year 2009 also included a reduction of c4,978thousand due to the fact that external revenue generated by MOTEX was no longer reported withinthe continuing operations of the Adler Group from financial year 2009 onward.

Against this background, revenue generated in Germany fell by 15.9% from c394,824 thousand infinancial year 2008 to c332,014 thousand in financial year 2009, revenue generated in Austria by7.6% from c65,880 thousand in financial year 2008 to c60,873 thousand in financial year 2009 andrevenue generated in Luxembourg by 6.8% from c13,899 thousand in financial year 2008 toc12,959 thousand in financial year 2009. The above-average decline in revenue generated inGermany was also due, as well as to the exclusion for the first time of the external revenuegenerated by MOTEX, to the reduction of the number of Adler stores operated in Germany whichfell from 112 on 1 January 2008 to 104 as at 31 December 2009, while the number of Adler storesoperated in Austria and Luxembourg rose from 18 to 19 in the same period and was thereforealmost unchanged.

A product-based analysis of the reduction in revenue showed that each of the product groups wasalso affected by the overall decline in Adler’s revenue in financial year 2009, although to differingextents. Accordingly, gross sales generated in the Womenswear division fell by 15.3% fromc290,909 thousand in financial year 2008 to c246,432 thousand in financial year 2009, gross salesgenerated in the Menswear division by 12.3% from c166,756 thousand in financial year 2008 toc146,297 thousand in financial year 2009, gross sales generated in the Lingerie division by 12.1%from c55,536 thousand in financial year 2008 to c48,846 thousand in financial year 2009 and grosssales generated from the supplementary assortment by 9.6% from c49,828 thousand in financial

65


year 2008 to c45,052 thousand in financial year 2009 (all of the figures quoted in this paragraphwere generated by or derived from Adler’s stock management system and are unaudited).


The increase in revenue of 9.6% from c405,846 thousand in financial year 2009 to c444,809thousand in financial year 2010 was mainly attributable to the successful repositioning of Adler’sbusiness by reorienting the product portfolio to meet the needs and expectations of the 45+ age-group, on the one hand, and by reopening closed stores and opening new Adler stores, on theother hand, which resulted in the number of stores growing from 123 as at 31 December 2009 to135 as at 31 December 2010.

All three national markets served by Adler contributed to this increase in revenue. Revenuegenerated in Germany rose by 7.3% from c332,014 thousand in financial year 2009 to c356,195thousand in financial year 2010, revenue generated in Austria by 22.5% from c60,873 thousand infinancial year 2009 to c74,599 thousand in financial year 2010 and revenue generated inLuxembourg by 8.1% from c12,959 thousand in financial year 2009 to c14,015 thousand infinancial year 2010. The above-average increase in revenue generated in Austria, as a result ofwhich the proportion of the Adler Group’s revenue generated outside Germany increased from18.2% in financial year 2009 to 19.9% in financial year 2010, was mostly due to the opening of atotal of 9 new Adler stores in Austria in financial year 2010.

An analysis by product group shows that all product groups contributed to the increase in revenuein financial year 2010, although the gross sales achieved by the supplementary assortment madethe biggest contribution, in both relative and absolute terms, improving by 54.9% from c24,740thousand in financial year 2009 to c69,792 thousand in financial year 2010. This increase in saleswas due almost entirely to the reorganisation of the business activities relating to sales of shoes,which had previously involved external providers who paid commissions and rent to the Company(please see also ‘‘Other operating income – Comparison of financial years 2009 and 2010’’). Inaddition, gross sales achieved in the Womenswear division were 5.8% higher at c260,805thousand in financial year 2010 compared with c246,432 thousand in financial year 2009 whilegross sales in the Lingerie division rose 10.8% from c48,846 thousand in financial year 2009 toc54,118 thousand in financial year 2010, more or less in line with the increase in total gross sales.In contrast, the Menswear division reported comparatively modest growth in gross sales of 2.5%from c146,297 thousand in financial year 2009 to c150,019 thousand in financial year 2010 (all ofthe figures quoted in this paragraph were generated by or derived from Adler’s stock managementsystem and are therefore unaudited).

Comparison of the first quarter of 2010 and the first quarter of 2011

Revenue rose by 9.1% from c84,249 thousand in the first quarter of 2010 to c91,906 thousand inthe first quarter of 2011. All three regional markets contributed to the growth in sales although thegreatest percentage increase was achieved in Austria. Revenue in Austria rose by 15.3% fromc13,416 thousand in the first quarter of 2010 to c15,468 thousand in the first quarter of 2011. InGermany the Adler Group achieved an increase of 7.9% in its revenue from c67,854 thousand inthe first quarter of financial year 2010 to c73,213 thousand in the first quarter of financial year2011, while in Luxembourg revenue grew by 8.2% from c2,979 thousand in the first quarter offinancial year 2010 to c3,224 thousand in the first quarter of financial year 2011. The increase inrevenue in Austria is mainly explained by the acquisition of the former Woolworths stores. Incontrast to the first quarter of financial year 2010, a total of eight former Woolworths stores, whichhave now been converted to Adler stores, were able to contribute fully to the growth in sales forthe first time in the first quarter of financial year 2011. The improvement in sales in Germany ismostly due to the opening of new stores. This was reflected in an increase in the number of storesin Germany from 104 as at 31 March 2010 to 109 as at 31 March 2011. The growth in sales inLuxembourg was achieved entirely on the basis of the existing sales area. An analysis by productgroup shows that all product groups contributed to the rise in revenue in the first quarter offinancial year 2011 compared with the first quarter of financial year 2010, although the percentagecontribution of the supplementary assortment to total gross sales increased from 10.6% in the firstquarter of financial year 2010 to 13.8% in the first quarter of financial year 2011.

Other operating income

The Adler Group’s other operating income mainly comprises rental income from sublet space in thestores, income from the reversal of provisions and other liabilities, income from commissions and

66


licence agreements together with costs recharged and reimbursements of costs. Adler alsogenerated substantial other operating income from disposals of non-current assets in financial year2008 in particular. The table below shows the breakdown of other operating income in financialyears 2008, 2009 and 2010 as well as in the first three months of financial years 2010 and 2011:


31 MarchOther operating income 2008* 2009* 2010* 2010 2011

c’000(audited)

c’000(audited)

c’000(audited)

c’000(unaudited)

c’000(unaudited)

Rent ............................................... 4,813 4,344 3,387 1,054 656Income from the reversal of

provisions .................................. 2,969 4,003 412 111 115Commissions ................................. 3,397 2,721 185 158 13Licence agreements....................... 831 2,466 859 208 185Income from the reversal of other

liabilities ..................................... 422 2,081 789 133 345Costs recharged/cost

reimbursements ......................... 1,047 616 667 110 92Income from damages ................... 185 289 431 32 21Income from disposals of non-

current assets ............................ 8,261 133 22 3 4Government subsidies for

personnel expenses .................. 227 129 252 90 36Prior-period income........................ — — 484 300 2Reimbursement of IPO costs......... — — — — 905Miscellaneous ................................ 1,252 927 684 42 227

23,404 17,709 8,172 2,240 2,601

* The financial information for financial years 2009 and 2010 has been extracted from the 2010 IFRS Consolidated FinancialStatements. The financial information for financial year 2008 has been extracted from the 2009 IFRS Consolidated FinancialStatements. The comparability of the financial information presented in this table for financial years 2008 and 2009 is limited.For further details please see ‘‘Background to the financial information contained in the Offering Memorandum and factorsaffecting its comparability’’.

The Adler Group’s other operating income fell by 24.3% from c23,404 thousand in financial year2008 to c17,709 thousand in financial year 2009 and by a further 53.9% to c8,172 thousand infinancial year 2010. Other operating income rose by 16.1% from c2,240 thousand in the firstquarter of financial year 2010 to c2,601 thousand in the first quarter of financial year 2011.


The decline of 24.3% in other operating income from c23,404 thousand to c17,709 thousand infinancial year 2009 was mainly due to lower income from disposals of non-current assets. Thelatter recorded a reduction of 98.4% from c8,261 thousand in financial year 2008 to c133 thousandin financial year 2009. Income from disposals of non-current assets in financial year 2008amounting to c6,501 thousand reflected the fact that a building complex leased under the terms ofa finance lease (the administration building and warehouses of MOTEX) was disposed of in thecourse of the negotiations for a new lease agreement and continued to be used under the terms ofan operating lease. The lease agreements for a further four Adler stores that had been classifiedto date as finance leases were also terminated prematurely. This disposal generated additionalincome from disposals of non-current assets amounting to c1,467 thousand in financial year 2008.The rental income arose from sublettings to store concessionaires. Licence income in financial year2009 amounting to c1,800 thousand reflected the grant of a trademark licence to a non-consolidated affiliated company. In addition, the exclusion of other operating income generated byMOTEX for the first time in financial year 2009 was responsible for c540 thousand of the decline.

The main factor offsetting the fall in other operating income was an increase of 34.8% in incomefrom the reversal of provisions from c2,969 thousand in financial year 2008 to c4,003 thousand infinancial year 2009. This was mainly due to the reversal of provisions for the early termination ofrental agreements, since the decision by the former management to close a number of stores was

67


reversed by the new Adler management team installed in financial year 2009. The jump of 196.8%in income from licence agreements from c831 thousand in financial year 2008 to c2,466 thousandin financial year 2009 was primarily due to the grant of a trademark licence to a non-consolidatedaffiliated company in Austria.


The continuing decline of 53.9% in other operating income from c17,709 thousand in financial year2009 to c8,172 thousand in financial year 2010 was due firstly to lower income from the reversalof provisions of c412 thousand in financial year 2010 compared with c4,003 thousand in financialyear 2009. This reflected the fact that there was no further income in financial year 2010 from thereversal of provisions in connection with the revision of the decision to close certain Adler stores.The second factor was the fall in licence income which included one-time income of c1,800thousand in financial year 2009 resulting from the grant of a trademark licence to an affiliatedcompany in Austria. In addition, income from provisions also fell by 93.2% from c2,721 thousand infinancial year 2009 to c185 thousand in financial year 2010. This was attributable to thereorganisation of the business activities with existing external providers in the Adler stores, mainlyrelating to sales of shoes, who had paid commissions to the Company in the past. Following thereorganisation of the activities with these business partners, the Company now generates revenuefrom the sale of the goods but no longer receives commissions. Income from the reversal ofliabilities declined by 62.1% from c2,081 thousand in financial year 2009 to c789 thousand infinancial year 2010 while rental income was 22.0% lower at c3,387 thousand in financial year 2010compared with c4,344 thousand in financial year 2009 as a consequence of Adler itself taking oversales of shoes from the existing concessionaire. The reduction in other operating income infinancial year 2010 was offset to some extent by prior-period income amounting to c484 thousandas a result of suppliers’ credits relating to deliveries of goods in previous years and the 95.3%increase in government subsidies for personnel expenses from c129 thousand in financial year2009 to c252 thousand in financial year 2010.


Other operating income improved by 16.1% from c2,240 thousand in the first quarter of financialyear 2010 to c2,601 thousand in the first quarter of financial year 2011.

The main reason for the increase in other operating income was other operating income amountingto c905 thousand representing a proportionate share of the costs of the IPO incurred to dateassumed by the parent company. Miscellaneous other operating income for the first quarter offinancial year 2011 also included advertising costs subsidies amounting to c144 thousandcompared with the figure of only c4 thousand generated in the first quarter of financial year 2010.These effects were offset by the reduction of 37.8% in rental income from c1,054 thousand in thefirst quarter of financial year 2010 to c656 thousand in the first quarter of financial year 2011 andlower commission income which fell by 91.8% from c158 thousand in the first quarter of financialyear 2010 to c13 thousand in the first quarter of financial year 2011. Both items resulted from thereorganisation from the end of March 2010 of the business activities with existing externalproviders in the Adler stores, especially relating to sales of shoes. Since that date, Adler has soldexternal providers’ products as its own products and reports these sales as part of its revenue. Onthe other hand, Adler receives no commission on the sales and the external providers no longerpay rent to Adler for space rented in the stores. In addition, Adler generated prior-period incomeamounting to c300 thousand in the first quarter of financial year 2010 as a result of suppliers’credits in connection with deliveries of merchandise relating to earlier years, which did not apply inthe first quarter of financial year 2011.

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Cost of materials

The cost of materials mainly comprises expenses for goods purchased as well as, to a very smallextent, expenses for services purchased. The table below shows the breakdown of the cost ofmaterials in financial years 2008, 2009 and 2010 as well as in the first three months of financialyears 2010 and 2011:


31 MarchCost of materials 2008* 2009* 2010* 2010 2011

c’000(audited)

c’000(audited)

c’000(audited)

c’000(unaudited)

c’000(unaudited)

Purchases of goods ....................... 239,596 205,277 210,360 43,790 47,321Purchases of services.................... 6 — — — —

239,602 205,277 210,360 43,790 47,321

Cost of materials ratio in %(unaudited) ................................ 50.5 50.6 47.3 52.0 51.5


The cost of materials fell by 14.3% from c239,602 thousand in financial year 2008 to c205,277thousand in financial year 2009 and rose again by 2.5% to c210,360 thousand in financial year2010. The cost of materials rose by a further 8.1% from c43,790 thousand in the first quarter offinancial year 2010 to c47,321 thousand in the first quarter of financial year 2011.


The decline of 14.3% in the cost of materials from c239,602 thousand in financial year 2008 toc205,277 thousand in financial year 2009 was mainly due to the reduced volume of business whichwas reflected in lower amounts of goods purchased and used, but also to lower markdowns ofmerchandise than in the previous year. The reduction in the cost of materials was slightly lowerthan the fall in revenues of 14.5% over the same period. This was entirely due to the fact that theexclusion of MOTEX for the first time in financial year 2009 resulted in an increase of c1,023thousand in the reported cost of materials representing services purchased from MOTEX no longereliminated on consolidation. The cost of materials ratio therefore rose slightly from 50.5% infinancial year 2008 to 50.6% in financial year 2009. If the activities of MOTEX had continued to beincluded in financial year 2009, the cost of materials ratio for financial year 2009 would havedropped to 49.7%.


The increase of 2.5% in the cost of materials from c205,277 thousand in financial year 2009 toc210,360 thousand in financial year 2010 mainly reflected the fact that the volume of businessrose again, as reflected in growth in revenue of 9.6% from c405,846 thousand in financial year2009 to c444,809 thousand in financial year 2010. This resulted in higher figures for goodspurchased and used. The cost of materials ratio improved from 50.6% in financial year 2009 to47.3% in financial year 2010 as a result of the slower rate of increase in the cost of materialscompared with revenue. The reasons for this were improvements in the price reductions andeconomies of scale together with improved buying terms.


The increase in revenue compared with the first quarter of financial year 2010 also resulted in ahigher cost of materials. The latter increased by 8.1% from c43,790 thousand in the first quarter offinancial year 2010 to c47,321 thousand in the first quarter of financial year 2011. It was thuspossible to restrict the rise in the cost of materials over the comparable period in the previous yearto less than the growth of 9.1% in revenue achieved in the same period. The cost of materialsratio consequently improved from 52.0% in the first quarter of 2010 to 51.5% in the first quarter offinancial year 2011. The first quarter of each financial year is generally characterised by pricemarkdowns on merchandise in anticipation of the changeover from the winter collection to the

69


summer collection. The cost of materials ratio therefore also tends to be higher in the first quarterof a financial year than in the financial year as a whole. In the first quarter of financial year 2011,however, Adler was able to achieve lower markdowns of goods than in the same period of theprevious year. This was the most significant reason for the improvement in the cost of materialsratio compared with the prior-year quarter.

Personnel expenses

In addition to wages and salaries, personnel expenses include employers’ contributions to thestatutory pension scheme, expenses for old-age pensions as well as for partial retirementschemes/death benefits and anniversaries, and other social security contributions. Other socialsecurity contributions mainly comprise statutory social security contributions such as health andunemployment insurance as well as accident insurance for employees. The table below shows thebreakdown of personnel expenses in financial years 2008, 2009 and 2010:


31 MarchPersonnel expenses 2008* 2009* 2010* 2010 2011

c’000(audited)

c’000(audited)

c’000(audited)

c’000(unaudited)

c’000(unaudited)

Wages and salaries ....................... 106,945 66,073 62,062 14,621 15,710Other social security contributions . 10,395 6,694 6,191 1,628 1,874Employers’ contributions to

statutory pension scheme.......... 9,911 6,778 5,926 1,361 1,498Expenses for old-age pensions ..... 712 689 774 154 183Expenses for partial retirement/

death benefits/anniversaries ...... 210 319 43 14 21

128,173 80,553 74,996 17,778 19,286

Personnel expenses ratio in %(unaudited) ................................ 27.0 19.8 16.9 21.1 21.0


Personnel expenses declined by 37.2% from c128,173 thousand in financial year 2008 to c80,553thousand in financial year 2009 and by a further 6.9% to c74,996 thousand in financial year 2010.Personnel expenses increased by 8.5% from c17,778 thousand in the first quarter of financial year2010 to c19,286 thousand in the first quarter of financial year 2011. The development of theaverage number of people employed by the Adler Group in financial years 2008, 2009 and 2010as well as in the first three months of financial years 2010 and 2011 was as follows:


31 March

Number of employees (average)2008*

(audited)2009*

(audited)2010*

(audited)2010

(unaudited)2011

(unaudited)

Managers ....................................... 157 150 161 151 175Salaried employees ....................... 1,249 778 706 678 701Part-time workers........................... 4,857 3,584 3,098 3,131 2,959Trainees ......................................... 228 190 209 197 240

6,491 4,702 4,174 4,157 4,075

* The financial information for financial years 2009 and 2010 has been extracted from the 2010 IFRS Consolidated FinancialStatements. The financial information for financial year 2008 has been extracted from the 2009 IFRS Consolidated FinancialStatements. The comparability of the financial information for financial years 2008 and 2009 is limited. For further detailsplease see ‘‘Background to the financial information contained in the Offering Memorandum and factors affecting itscomparability’’.

70



The reduction of 37.2% in personnel expenses from c128,173 thousand in financial year 2008 toc80,553 thousand in financial year 2009 was mainly due to restructuring-related personnelexpenses included in financial year 2008 and a lower number of employees in financial year 2009.Another reason for the fall in personnel expenses for financial year 2009 was the exclusion for thefirst time of personnel expenses amounting to c11,206 thousand incurred by MOTEX, which had421 employees on average during 2009 (average in 2008: 535 employees).

In the light of these factors, wages and salaries fell by 38.2% from c106,945 thousand in financialyear 2008 to c66,073 thousand in financial year 2009. In line with this, employers’ contributions tothe statutory pension scheme declined by 31.6% from c9,911 thousand in financial year 2008 toc6,778 thousand in financial year 2009 while other social security contributions were 35.6% lower,falling from c10,395 thousand in financial year 2008 to c6,694 thousand in financial year 2009. Thepercentage reduction in personnel costs was therefore higher than the percentage reduction in theaverage number of employees, which fell by only 27.6%. As a result, the personnel expenses ratiodeclined from 27.0% in financial year 2008 to 19.8% in financial year 2009, despite the lower figurefor revenue in financial year 2009.


The continued decline of 6.9% in personnel expenses from c80,553 thousand in financial year2009 to c74,996 thousand in financial year 2010 was mainly due to the lower number ofemployees in financial year 2010 as a result of the restructuring programme which was notcompleted until this financial year. The fall in the number of employees was primarily due to areduction in part-time workers from 3,584 on average during financial year 2009 to 3,098 onaverage during financial year 2010. This was reflected in particular in a 6.1% decline in expensesfor wages and salaries from c66,073 thousand in financial year 2009 to c62,062 thousand infinancial year 2010.

The personnel expenses ratio again improved from 19.8% in financial year 2009 to 16.9% infinancial year 2010, reflecting the further reduction in personnel expenses along with the increasein revenue.


Personnel expenses rose by 8.5% from c17,778 thousand in the first quarter of financial year 2010to c19,286 thousand in the first quarter of financial year 2011. However, the number of peopleemployed by the Adler Group fell from an average of 4,157 in the first quarter of financial year2010 to an average of 4,075 in the first quarter of financial year 2010. This included the 107people employed on average by Adler Asset GmbH, which was acquired as at 31 December 2010,who were taken into account for the first time in the first quarter of financial year 2011. The firstreason for the rise in personnel expenses over the prior-year quarter was the higher number offull-time employees in the first quarter of financial year 2011 compared with the first quarter offinancial year 2010 and the increase in the hours worked by part-time employees which wasgreater overall than the savings achieved through the reduction in numbers of part-time employees.It should be noted in this connection that, because of the higher salary level, an increase in thenumber of full-time employees has a significantly greater effect on personnel expenses than areduction of part-time employees considered in absolute terms. This effect was increased due tothe payment of employers’ contributions to employees’ capital-building accounts which wasrestarted in April 2010 and therefore did not affect the first quarter of financial year 2010. Inaddition, new contracts of employment for the members of the Executive Board have been in forcesince 1 January 2011 which provide, among other things, for a variable component of remunerationin the event of a successful IPO. In accordance with IFRS, an addition to personnel expenses wastherefore recorded in the first quarter of financial year 2011. The Company nevertheless managedto keep the personnel expenses ratio more or less unchanged compared with the prior-year periodand in fact the ratio fell marginally from 21.1% in the first quarter of financial year 2010 to 21.0%in the first quarter of financial year 2011 due to the slightly faster growth in revenue.

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Other operating expenses

The table below shows the breakdown of other operating expenses in financial years 2008, 2009and 2010 as well as in the first three montths of the 2010 and 2011 financial years:


31 MarchOther operating expenses 2008* 2009* 2010* 2010 2011

c’000(audited)

c’000(audited)

c’000(audited)

c’000(unaudited)

c’000(unaudited)

Lease payments and buildingexpenses ................................... 58,152 53,171 54,176 12,981 13,976

Advertising costs............................ 47,232 32,028 37,960 10,076 10,568Shipping and transport costs ......... — 12,881 12,295 3,457 2,936Technical facilities.......................... 12,498 8,315 8,371 1,758 2,416Consultancy expenses................... 4,460 4,412 2,383 455 1,015Administrative expenses ................ 5,797 3,511 2,919 976 868External cleaning costs .................. 3,439 3,109 2,744 647 704Consumables ................................. 2,999 2,396 2,489 712 638Office expenses ............................. 2,115 1,287 1,398 360 381Incidental costs of monetary

transactions ............................... 1,119 1,010 1,122 186 225Losses from disposals of non-

current assets ............................ 1,151 410 645 245 10Costs of terminating contracts ....... 12,915 — — — —Miscellaneous ................................ 5,535 2,721 3,274 467 766

157,412 125,251 129,776 32,321 34,502


Other operating expenses recorded a decline of 20.4% from c157,412 thousand in financial year2008 to c125,251 thousand in financial year 2009 and rose by 3.6% to c129,776 thousand infinancial year 2010. Other operating expenses rose by 6.7% from c32,321 thousand in the firstquarter of financial year 2010 to c34,502 thousand in the first quarter of financial year 2011.


The decline of 20.4% in other operating expenses from c157,412 thousand in financial year 2008to c125,251 thousand in financial year 2009 was mainly due firstly to the costs of contractterminations amounting to c12,915 thousand included in financial year 2008 in connection withrental agreements for insufficiently profitable stores terminated prematurely that were no longerincurred in financial year 2009. An additional factor was a significant reduction of 32.2% inadvertising costs from c47,232 thousand in financial year 2008 to c32,028 thousand in financialyear 2009 which reflected the unsuccessful attempt in financial year 2008 by the management ofAdler at that time to implement a rejuvenation strategy with the help of substantial marketingexpenditure. As part of the successful repositioning of the Adler brand carried out in financial year2009 to meet the needs and expectations of the growing 45+ age-group, the current managementwas able to return marketing costs to a significantly lower level. Lease payments and buildingexpenses also fell by 8.6% from c58,152 thousand in financial year 2008 to c53,171 thousand infinancial year 2009 mainly as a result of the reductions in selling area initiated in financial year2008. In addition, reductions were achieved of 33.5% in expenses for technical facilities fromc12,498 thousand in financial year 2008 to c8,315 thousand in financial year 2009 and of 39.4% inadministrative expenses from c5,797 thousand in financial year 2008 to c3,511 thousand infinancial year 2009. The decline in other operating expenses in financial year 2009 was offset byshipping and transport costs amounting to c12,881 thousand that were no longer eliminated onconsolidation in this financial year but reported as expenses as a result of the exclusion for thefirst time of the activities of MOTEX.

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The increase of 3.6% in other operating expenses from c125,251 thousand in financial year 2009to c129,776 thousand in financial year 2010 was mainly due to the rise in advertising costs whichrose by 18.5% from c32,028 thousand in financial year 2009 to c37,960 thousand in financial year2010 primarily as a result of renewed TV and radio advertising. The increase in other operatingexpenses was held back firstly by the continuing reduction in administrative expenses, which fell by16.9% from c3,511 thousand in financial year 2009 to c2,919 thousand in financial year 2010, andin particular by the 46.0% decline in consultancy expenses from c4,412 thousand in financial year2009 to c2,383 thousand in financial year 2010. The latter was mainly due to the fact thatconsultancy services utilised in connection with the restructuring programme in financial year 2009were no longer incurred in financial year 2010. A further factor was the 11.7% decline in externalcleaning costs from c3,109 thousand in financial year 2009 to c2,744 thousand in financial year2010 which reflected contract renegotiations and the reduction in the range of services.


Other operating expenses increased by 6.7% from c32,321 thousand in the first quarter of financialyear 2010 to c34,502 thousand in the first quarter of financial year 2011. The main reason for theincrease was the 7.7% rise in lease payments from c12,981 thousand in the first quarter offinancial year 2010 to c13,976 thousand in the first quarter of financial year 2011 and theassociated higher expenses for technical facilities which grew by 37.4% from c1,758 thousand inthe first quarter of financial year 2010 to c2,416 thousand in the first quarter of financial year 2011.A significant contribution to the increase in other operating expenses was also made byconsultancy expenses which rose by 123.1% from c455 thousand in the first quarter of financialyear 2010 to c1,015 thousand in the first quarter of financial year 2011, mainly due to consultancyservices in connection with the IPO arising in the first quarter of the current financial year. Inaddition, advertising costs increased by 4.9% from c10,076 thousand in the first quarter of financialyear 2010 to c10,568 thousand in the first quarter of financial year 2011. This was caused by ahigher level of marketing activities in the first quarter of financial year 2011, especially in relation toradio advertising. The rise in other operating expenses was slowed by lower shipping and transportcosts in the first quarter of financial year 2011. The latter fell by 15.1% from c3,457 thousand inthe first quarter of financial year 2010 to c2,936 thousand in the first quarter of financial year 2011because, following the sale of MOTEX as at 30 September 2010, Adler entered into a newagreement with MOTEX for logistics services on more favourable terms and was thus able toreduce the costs of transporting merchandise.

Depreciation and amortisation

Depreciation and amortisation comprises depreciation charged on property, plant and equipmentand amortisation charged on intangible assets. Depreciation charged on property, plant andequipment mostly consists of depreciation in respect of lessee’s fixtures in buildings owned by thirdparties, buildings held under finance leases and other operating and office equipment. The tablebelow shows the breakdown of depreciation and amortisation in financial years 2008, 2009 and2010 as well as in the first three months of the 2010 and 2011 financial years:


31 MarchDepreciation and amortisation 2008* 2009* 2010* 2010 2011

c’000(audited)

c’000(audited)

c’000(audited)

c’000(unaudited)

c’000(unaudited)

Amortisation of intangible assets ..................... 1,586 1,654 817 211 184Depreciation of property, plant and equipment 18,793 13,868 12,749 3,385 3,176

20,379 15,521 13,565 3,596 3,360


Depreciation and amortisation fell by 23.8% from c20,379 thousand in financial year 2008 toc15,521 thousand in financial year 2009 and by a further 12.6% to c13,565 thousand in financial

73


year 2010. Depreciation and amortisation fell by 6.6% from c3,596 thousand in the first quarter of2010 to c3,360 thousand in the first quarter of 2011.


Depreciation and amortisation in financial year 2008 amounting to c20,379 thousand consistedprincipally of depreciation charged in respect of lessee’s fixtures in buildings owned by third parties,buildings held under finance leases and other operating and office equipment. The decline of23.8% to c15,521 thousand in depreciation and amortisation in financial year 2009 was mainly dueto the fact that depreciation and amortisation charged on non-current assets within MOTEX infinancial year 2009 were no longer reported, since its activities were no longer included incontinuing operations in the 2010 IFRS Consolidated Financial Statements. Depreciation andamortisation in financial year 2008 still included depreciation and amortisation of c3,520 thousandrelating to the assets of MOTEX. In addition, a total of four buildings held under finance leases,which had contributed c668 thousand to depreciation and amortisation for financial year 2008, weredisposed of at the end of that year.


The main reason for the further decline of 12.6% in depreciation and amortisation from c15,521thousand in financial year 2009 to c13,565 thousand in financial year 2010 was the reduction ininvestments in non-current assets in financial years 2009 and 2010 as a result of the restructuringprogramme. The lower amount of investments resulted in correspondingly lower depreciation andamortisation. An additional factor was that only a single new finance lease agreement for a storewas added in financial year 2010, which was also insufficient to outweigh the annual depreciationon the existing buildings held under finance leases.


Depreciation and amortisation charged on non-current assets declined by 6.6% from c3,596thousand in the first quarter of financial year 2010 to c3,360 thousand in the first quarter offinancial year 2011. The main reason for the further decline in depreciation and amortisation wasonce again the reduction in investments in financial years 2009 and 2010 as a result of therestructuring programme.

Impairment

Impairment comprises impairment losses recognised on intangible assets and property, plant andequipment. The table below shows the breakdown of impairment charges in financial years 2008,2009 and 2010 as well as in the first three months of financial years 2010 and 2011:


31 MarchImpairment charges and

reversals 2008* 2009* 2010* 2010 2011

c’000(audited)

c’000(audited)

c’000(audited)

c’000(unaudited)

c’000(unaudited)

of which charged on intangibleassets ........................................ 250 1,814 — — —

of which charged on property, plantand equipment (net reversals in2009) ......................................... 7,603 -393 — — —

of which charged on investmentproperty ..................................... — 900 — — —

7,852 2,322 — — —


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Impairment fell by 70.4% from c7,852 thousand in financial year 2008 to c2,322 thousand infinancial year 2009. No impairment charges were incurred in financial year 2010, or in the firstquarter of 2011.


The decline in impairment in financial year 2009 was mainly due to the fact that in financial year2008 impairment charges amounting to c6,547 thousand were recognised in respect of intangibleassets and property, plant and equipment of MOTEX, and impairment charges amounting to c759thousand were incurred for the closure of stores. In this connection, an impairment charge of c546thousand was also recognised in respect of property, plant and equipment capitalised under theterms of a finance lease. Because of the development of the economy in financial year 2008, theassets of MOTEX were tested for impairment as at 31 December 2008. In the light of therecoverable amounts determined, an impairment charge of c6,547 thousand was recognised. Ofthe total charge, an amount of c250 thousand was allocated to intangible assets, c112 thousand tobuildings, c4,602 thousand to technical equipment and machinery and c1,583 thousand to otheritems of property, plant and equipment. In financial year 2009, reversals of impairment chargesamounting to c565 thousand were recognised in profit or loss due to the fact that only some of theprojected closures of stores actually took place. The impairment charges previously recognised inrespect of the property, plant and equipment of those stores which continued to be operated werereversed up to the assets’ original depreciated cost.


In financial year 2009, impairment losses amounting to c448 thousand were recognised in respectof the rights to the ‘‘VIVENTY by Bernd Berger’’ brand acquired under the terms of a financelease. As a result of negative gross income relating to the ‘‘VIVENTY by Bernd Berger’’ line, theintangible asset was written off in full. Further impairment losses totalling c1,367 thousand wererecorded in financial year 2009 in respect of internally generated logistics software since the use ofindividual components of the software was discontinued in financial year 2009. Also in financialyear 2009, impairment losses amounting in total to c900 thousand were charged in connection withthe reclassification of one property into investment property. The portion of the property no longerutilised by the Company itself was reclassified out of property, plant and equipment. The propertywas written down to its fair value including land. This amount to c4,020 thousand as at31 December 2009.

In financial year 2010, no impairment losses were required to be recognised within continuingoperations. The assets and liabilities of the discontinued operations were written down in financialyear 2010 to their fair value less costs to sell. This resulted in an impairment loss of c2,665thousand, the full amount of which was reported within discontinued operations (please see alsothe section headed ‘‘Consolidated net profit or loss for the year’’).

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EBITDA and EBIT

The table below shows the development of EBITDA, EBIT, the most significant indicators ofoperating performance in the view of the Company, in financial years 2008, 2009 and 2010 as wellas in the first three months of 2010 and 2011, and the EBITDA adjusted for restructuring-relatedspecial items in financial years 2008 and 2009:


31 MarchEBITDA and EBIT 2008* 2009* 2010* 2010 2011

c’000(audited)

c’000(audited)

c’000(audited)

c’000(unaudited)

c’000(unaudited)

EBITDA ........................................ -27,180 12,474 37,849 -7,400 -6,602EBITDA margin (in % of revenue)

(unaudited) ............................... -5.7 3.1 8.5 -8.8 -7.2EBIT ............................................. -55,411 -5,369 24,284 -10,996 -9,962EBIT margin (in % of revenue)

(unaudited) ................................ -11.7 -1.3 5.5 -13.1 -10.8Adjusted EBITDA (unaudited)**.. -1,392 13,348 — — —Adjusted EBITDA margin (in % of

revenue) (unaudited) ................. -0.3 3.3 — — —


** Adjusted for non-recurring items arising from the restructuring programme (for further details of the derivation of adjustedEBITDA, please see ‘‘Adjusted EBITDA’’).

The Company uses EBITDA and EBIT as performance indicators in its business operations and isof the opinion that these key figures could be used as performance indicators by investors. TheCompany defines EBITDA (earnings before interest, taxes, depreciation and amortisation) as EBITbefore depreciation and amortisation and impairment charges. The Company defines EBIT(earnings before interest and taxes) in this context as the profit or loss from operations before netfinance costs and taxes. The figures for EBITDA and EBIT presented in this Offering Memorandummay not be comparable with the figures for EBITDA and EBIT reported by other companies since,in the absence of a generally accepted definition of these key figures, they may be calculated onthe basis of different underlying variables.

EBITDA

EBITDA improved from c-27,180 thousand in financial year 2008 to c12,474 thousand in financialyear 2009 and by a further 203.3% to c37,849 thousand in financial year 2010. The negative figurefor EBITDA in the first quarter caused by seasonal factors (see ‘‘Significant factors affecting thefinancial condition and results of operations – Market and sector-related factors – Seasonalfluctuations’’) improved from c-7,400 thousand in the first quarter of financial year 2010 to c-6,602thousand in the first quarter of financial year 2011.


The improvement in EBITDA in financial year 2009 was mainly attributable to the faster rate ofdecline in personnel expenses (-37.2%) and other operating expenses (-20.4%) in financial year2009 compared with the fall in revenue (-14.5%). The main reasons for the above-averagereduction in personnel expenses were non-recurring personnel expenses incurred in financial year2008 as a result of the restructuring programme and the lower number of people employed by theAdler Group. The decline in other operating expenses was mainly due to costs of contractterminations included in financial year 2008 in connection with rental agreements for insufficientlyprofitable stores terminated prematurely that were no longer incurred in financial year 2009, and toa significant reduction in advertising costs as a result of the successful repositioning of the Adlerbrand to meet the needs and expectations of the expanding 45+ age-group (for more details,please see ‘‘Personnel expenses’’ and ‘‘Other operating expenses’’).

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The renewed improvement in EBITDA in financial year 2010 was mainly due to the faster rate ofincrease in revenue (+9.6%) compared with the rise in the cost of materials (+2.5%) and in otheroperating expenses (+3.6%), while at the same time personnel expenses declined (-6.9%) (forfurther details, please see ‘‘Cost of materials’’, ‘‘Personnel expenses’’ and ‘‘Other operatingexpenses’’).


It is characteristic of the apparel sector that the sales and earnings of retailers such as Adler areweaker in the first quarter of each calendar year than in the subsequent quarters. Since Adler’sfinancial year corresponds to the calendar year, the first quarter of Adler’s financial year generallyreports negative EBITDA. This is due to a generally low level of consumer expenditure in the firstquarter and also by lower selling prices as a result of markdowns. The changeover from the wintercollection to the summer collection takes place towards the end of the first quarter. Thischangeover is accompanied by lower selling prices on the sales side in order to make the salesareas available for the new collection. The consequence of this is a higher cost of materials ratiowhich, however, generally improves during the course of the financial year (for further information,see also ‘‘Significant factors affecting the financial condition and results of operations – Market andsector-related factors – Seasonal fluctuations’’). The Adler Group was nevertheless able to improveits EBITDA figure compared with the prior-year period from c-7,400 thousand in the first quarter offinancial year 2010 to c-6,602 thousand in the first quarter of financial year 2011. Thisimprovement was mainly due to the 9.1% growth in revenue compared with the same quarter inthe previous year and the rise of 16.1% in other operating income, which outweighed the increasesof 8.1% in the cost of materials, 8.5% in personnel expenses and 6.7% in other operatingexpenses. It was also possible to keep the price reductions in the first quarter of financial year2011 lower than in the first quarter of financial year 2010, which had a positive effect on revenueand the cost of materials ratio.

EBIT

EBIT rose by 90.3% from c-55,411 thousand in financial year 2008 to c-5,369 thousand in financialyear 2009 and improved further to c24,284 thousand in financial year 2010. The EBIT of the AdlerGroup as a retailer in the apparel sector is also generally negative in the first quarter of thefinancial year due to seasonal factors (see ‘‘Significant factors affecting the financial condition andresults of operations – Market and sector-related factors – Seasonal fluctuations’’). Against thisbackground, EBIT improved from c-10,996 thousand in the first quarter of financial year 2010 toc-9,962 thousand in the first quarter of financial year 2011.


The more significant improvement increase in EBIT compared with the improvement in EBITDA infinancial year 2009 reflected the significant reductions in both depreciation and amortisation (-23.8%) and impairment charges (-70.4%) in financial year 2009. The lower figure for depreciationand amortisation in financial year 2009 was primarily due to the fact that depreciation andamortisation on the non-current assets of MOTEX were no longer included in financial year 2009.The decline in impairment charges in financial year 2009 mainly reflected the inclusion in financialyear 2008 of impairment losses amounting to c6,547 thousand in respect of the intangible assetsand property, plant and equipment of MOTEX and impairment charges amounting to c759thousand incurred in connection with the closure of stores (for further details, please see‘‘Depreciation and amortisation’’ and ‘‘Impairment’’).


The stronger improvement in EBIT compared with the rise in EBITDA again in financial year 2010reflected both the continuing decline in depreciation and amortisation (-12.6%) and the fact that noimpairment losses at all were charged within continuing operations (for further details, please see‘‘Depreciation and amortisation’’ and ‘‘Impairment’’).


The improvement in EBIT from c-10,996 thousand in the first quarter of financial year 2010 toc-9,962 thousand in the first quarter of financial year 2011 was due, as well as to the improvementin EBITDA from c-7,400 thousand in the first quarter of financial year 2010 to c-6,602 thousand in

77


the first quarter of financial year 2011, to a reduction in depreciation and amortisation from c3,596thousand in the first quarter of financial year 2010 to c3,360 thousand in the first quarter offinancial year 2011.

Adjusted EBITDA

Financial years 2008 and 2009 were significantly affected by non-recurring items relating to therestructuring programme.

Adjusted 2008 EBITDA

In financial year 2008 in particular non-recurring items relating to the restructuring programme wereincurred which had a material effect on the results of the Adler Group for that financial year. Thenon-recurring items consisted of the costs of contract terminations resulting from the earlytermination of rental agreements for unprofitable Adler stores, personnel expenses for socialcompensation plans and termination benefits, and consultancy expenses for restructuring advisers.The expenses were offset by income from the reversal of restructuring provisions recognised in theprior year. These non-recurring items had a significant adverse effect on the EBITDA of the AdlerGroup in financial year 2008.

Adjusted 2009 EBITDA

Non-recurring items relating to the restructuring programme were also incurred in financial year2009. They were much lower than in the previous year, however. For example, personnel-relatedrestructuring expenses were incurred again in financial year 2009. These expenses were balancedby the reversal of restructuring provisions recognised in the prior year, with the result that theimpact of non-recurring items on the EBITDA of the Adler Group in financial year 2009 was not assevere as in financial year 2008.

Adjusted 2010 and Q1 2011 EBITDA

There were no significant non-recurring items relating to the restructuring programme in financialyear 2010 or for the first quarter of 2011. An adjusted EBITDA has therefore not been prepared forfinancial year 2010 or for the first quarter of 2011.

The detailed reconciliation of EBITDA for financial years 2008 and 2009 to adjusted EBITDA forthose financial years was as follows:

Financial yearEBITDA and adjusted EBITDA 2008 2009


EBITDA reported in the income statement (audited) ................................ -27,180 12,474Costs of contract terminations .................................................................. +12,915 —Expenses for staff reductions ................................................................... +11,132 +4,355Expenses for restructuring advice ............................................................. +1,854 —Income from the reversal of restructuring provisions ................................. -113 -3,481

Adjusted EBITDA ......................................................................................... -1,392 13,348

EBITDA adjusted as shown above developed from c-1,392 thousand in financial year 2008 toc13,348 thousand in financial year 2009. EBITDA for financial year 2010, which was not adjustedin the absence of significant non-recurring items due to the restructuring programme, amounted toc37,849 thousand. The adjusted EBITDA margin therefore improved from -0.3% in financial year2008 to 3.3% in financial year 2009. In financial year 2010 Adler achieved an unadjusted EBITDAmargin of 8.5%.

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Net finance costs

The table below shows net finance costs for financial years 2008, 2009 and 2010 and for the firstthree months of 2010 and 2011:


31 MarchNet finance costs 2008* 2009* 2010* 2010 2011

c’000(audited)

c’000(audited)

c’000(audited)

c’000(unaudited)

c’000(unaudited)

Interest income ............................ 786 1,919 3,538 773 20from receivables from affiliatedcompanies ................................. 160 1,622 3,402 730 —from receivables from banks ...... 169 210 136 12 19from tax repayments .................. 451 — — — —from other items ......................... 6 87 0 31 0

Interest expense .......................... -6,977 -5,022 -4,121 -1,099 -914for finance leases ....................... -6,290 -4,639 -3,865 -1,030 -866for liabilities to affiliatedcompanies ................................. -261 -363 -88 — 0for liabilities to banks.................. -409 -15 -167 -40 -48for payments of additional tax .... -12 0 — — —for other items ............................ -5 -5 -1 -29 —

Net finance costs ......................... -6,191 -3,103 -583 -326 -894


Net finance costs improved by 49.9% from c6,191 thousand in financial year 2008 to c3,103thousand in financial year 2009 and by a further 81.2% to c583 thousand in financial year 2010.Net finance costs changed from c326 thousand in the first quarter of financial year 2010 to c894thousand in the first quarter of financial year 2011.


The improvement in net finance costs in financial year 2009 was mainly due to a reduction in theinterest expense relating to finance leases from c6,290 thousand in financial year 2008 to c4,639thousand in financial year 2009. The decline in the finance charge portion of the lease paymentsfor finance lease agreements mainly reflected the fact that a building complex leased under theterms of a finance lease (the administration building and warehouses of MOTEX GmbH) wasreclassified in the course of the negotiations for a new lease agreement and continued to be usedunder the terms of an operating lease. In addition, four lease agreements classified as financeleases were terminated early in financial year 2008.

The increase in interest income arising from receivables from affiliated companies is mainlyattributable to the loan granted to Adler Treasury GmbH in financial year 2009.


The renewed improvement in net finance costs in financial year 2010 mainly reflected the increaseof 109.7% in interest income from receivables from affiliated companies from c1,622 thousand infinancial year 2009 to c3,402 thousand in financial year 2010 resulting from the grant of anadditional loan to the affiliated company Adler Treasury GmbH. In addition, the interest expense forfinance leases declined again from c4,639 thousand in financial year 2009 to c3,865 thousand infinancial year 2010 as a result of the planned reduction in liabilities from finance leases.


Net finance costs increased by 174.2% from c326 thousand in the first quarter of financial year2010 to c894 thousand in the first quarter of financial year 2011. The principal reason for this wasthe decline in interest income from receivables due from affiliated companies. In the first quarter of

79


financial year 2010, interest income still included c730 thousand of interest income due from theaffiliated company Adler Treasury GmbH as a result of the grant of short-term loans. These loanswere settled at the end of financial year 2010 by offsetting through intercompany accounts. Nofurther interest income from loan receivables due from affiliated companies was therefore reportedin the first quarter of financial year 2011. The resulting increase in net finance costs was offset tosome extent by a reduction of c185 thousand achieved in the interest expense compared with theprior-year period. This was mainly attributable to further scheduled repayments of finance leaseliabilities which resulted in a 15.9% reduction in the interest expense for finance leases fromc1,030 thousand in the first quarter of financial year 2010 to c866 thousand in the first quarter offinancial year 2011.

Income taxes

The table below shows the breakdown of income taxes in financial years 2008, 2009 and 2010 andin the first three months of financial years 2010 and 2011:


31 MarchIncome taxes 2008* 2009* 2010* 2010 2011

c’000(audited)

c’000(audited)

c’000(audited)

c’000(unaudited)

c’000(unaudited)

Current tax expense (-)/ benefit (+) 4,252 -86 -301 -56 -60Deferred taxes ............................... -1,895 -63 5,079 123 2,065

2,357 -149 4,778 67 2,006


Income taxes paid and payable in the individual countries together with deferred tax expenses andbenefits are reported under income taxes.

A profit and loss transfer agreement and tax grouping for income tax purposes were in placebetween the Company and AMODA GmbH in all three financial years under review. As a result,the Company as a member of the tax group had no liability to income tax. The profit and losstransfer agreement was terminated on 30 September 2010 with effect as at 31 December 2010.Accordingly, there has been no grouping of companies for tax purposes since 1 January 2011.Since no liability to pay tax arose in the hands of the Company until the cessation of the groupingfor tax purposes on 31 December 2010, no current tax expense was recorded up to that date.Following the termination of the grouping for tax purposes as at 31 December 2010, the effects ofcurrent taxes have been included in the financial statements for the first time from 1 January 2011with the result that, beginning in financial year 2011, the Company is expected to incur asignificantly higher tax expense than in previous financial years. Against this background, incometaxes reported by the Adler Group amounted to a tax benefit of c2,357 thousand in financial year2008, a tax expense of c149 thousand in financial year 2009 and a further tax benefit amountingto c4,778 thousand in financial year 2010. A tax benefit of c67 thousand was reported for the firstquarter of financial year 2010. In the first quarter of financial year 2011, i.e. the first period underreview since the termination of the profit and loss transfer agreement, a tax benefit amounting toc2,006 thousand was recorded.


The current tax benefit in financial year 2008 was mainly the result of repayments of corporationtax relating to financial years before the tax grouping was in place. The reduction of 96.7% in thedeferred tax expense from c1,895 thousand in financial year 2008 to c63 thousand in financial year2009 was mainly due to the termination of a total of five finance leases for which the amount ofthe related deferred tax assets reversed was greater than the amount of the correspondingdeferred tax liabilities reversed.

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The change in income taxes from a tax expense of c149 thousand in financial year 2009 to a taxbenefit amounting to c4,778 thousand in financial year 2010 was mainly due to the first-timerecognition of deferred taxes within the Company. Deferred taxes were required to be included inthe Company’s financial statements for the first time as a result of the termination of the groupingof companies for tax purposes as at 31 December 2010. Since the deferred tax assets required tobe recognised for the first time were higher than the deferred tax liabilities also required to berecognised for the first time, the net effect was the recognition in financial year 2010 of a deferredtax benefit amounting to c5,079 thousand, in contrast to the deferred tax expense of c63 thousandrecorded in financial year 2009.


The first quarters of financial years 2010 and 2011 both generated a tax benefit for the AdlerGroup as a whole. The amount of the tax benefit rose from c67 thousand in the first quarter offinancial year 2010 to c2,006 thousand in the first quarter of financial year 2011. The increase wasmainly due to higher income from deferred taxes of c2,065 thousand compared with c123thousand. Both quarters recorded an expense for current taxes which increased only slightly fromc56 thousand in the first quarter of financial year 2010 to c60 thousand in the first quarter offinancial year 2011. The reason for the substantial rise in deferred tax income was the terminationof the profit and loss transfer agreement and therefore also the termination of the grouping forincome tax purposes between the Company and AMODA GmbH as at 31 December 2010. Nodeferred taxes were recorded in the books of the Company in the first quarter of financial year2010, because the profit and loss transfer agreement was still in place. In the first quarter offinancial year 2011, in contrast, deferred tax assets were required to be recognised in respect ofthe taxable loss arising up to the end of that quarter. The amount of the deferred tax income wascalculated on the basis of an actual tax calculation for the first quarter of financial year 2011.

Consolidated net profit or loss for the period

The consolidated net loss for period 2008 is comprised of EBIT less net finance costs and incometaxes. In the 2010 IFRS Consolidated Financial Statements (including the comparative figurespresented for financial year 2009), on the other hand, EBIT less net finance costs and incometaxes represents the profit or loss from continuing operations. The reason for this is the Company’sdecision, made and implemented in financial year 2010, to sell its shareholding in MOTEX. Inconsequence, a distinction is made between continuing operations and discontinued operations inthe consolidated income statement in the 2010 IFRS Consolidated Financial Statements (includingthe comparative figures presented for financial year 2009). The profit or loss after tax of MOTEXfor the first 9 months of financial year 2010 and the net profit or loss of MOTEX for financial year2009 are reported in each case as a separate item in the consolidated income statement in the2010 IFRS Consolidated Financial Statements (including the comparative figures presented forfinancial year 2009) (for further details, please see ‘‘Background to the financial informationcontained in the Offering Memorandum and factors affecting its comparability’’).

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The table below shows the consolidated net profit or loss for the period in financial years 2008,2009 and 2010 and in the first three months of financial years 2010 and 2011 and the breakdownbetween the profit or loss from continuing operations and the profit or loss from discontinuedoperations in financial years 2009 and 2010 and in the first three months of financial years 2010and 2011:


31 March2008* 2009* 2010* 2010 2011

c’000(audited)

c’000(audited)

c’000(audited)

c’000(unaudited)

c’000(unaudited)

Profit/loss from continuingoperations .................................. n.a. -8,621 28,479 -11,255 -8,850

Profit/loss from discontinuedoperations .................................. n.a. 1,343 -1,057 -1,059 —

Consolidated net profit (+)/ loss(-) for the period ...................... -59,245 -7,278 27,422 -12,314 -8,850


The consolidated net profit or loss for the period developed from c-59,245 thousand in financialyear 2008 to c-7,278 thousand in financial year 2009 and c27,422 thousand in financial year 2010.The consolidated net loss for the period improved compared with the same quarter of the previousyear from c12,314 thousand in the first quarter of financial year 2010 to c8,850 thousand in thefirst quarter of financial year 2011.


In financial year 2008, the consolidated net loss for the period comprised EBIT amounting toc-55,411 thousand plus net finance costs of c-6,191 thousand plus income taxes of c2,357thousand.

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In financial year 2009, the consolidated net loss for the period was made up of the loss fromcontinuing operations amounting to c-8,621 thousand and the profit from discontinued operationsamounting to c1,343 thousand. In financial year 2010, the consolidated net profit for the periodwas made up of the profit from continuing operations amounting to c28,479 thousand and the lossfrom discontinued operations amounting to c-1,057 thousand. The breakdown of the profit or lossfrom discontinued operations in financial years 2009 and 2010 was as follows:


31 March2009 2010 2010 2011

c’000(audited)

c’000(audited)

c’000(unaudited)

c’000(unaudited)

Income* ............................................................... 24,318 18,831 7,285 —Expenses ............................................................ -22,947 -16,931 -5,947 —Operating profit before tax .............................. 1,371 1,900 1,338 —Income taxes on operating profit ........................ -28 -292 -282 —Operating profit after tax.................................. 1,343 1,608 1,056 —Gain/loss from remeasurement/disposal ............. — -2,665 -2,115 —Gain/loss from remeasurement/disposal after

tax................................................................... — -2,665 -2,115 —Profit/loss from discontinued operations....... 1,343 -1,057 -1,059 —

* The income from discontinued activities, which relate entirely to MOTEX, consisted mainly of intra-Group income in bothfinancial year 2009 and financial year 2010. MOTEX’s revenue from business with external third parties amounted to onlyc4,978 thousand in financial year 2009 and to c3,853 thousand in financial year 2010.

The main reason for the improvement in the consolidated net profit or loss for the period fromc-7,278 thousand in financial year 2009 to c27,422 thousand in financial year 2010 was theimprovement in the profit or loss from continuing operations from c-8,621 thousand in financial year2009 to c28,479 thousand in financial year 2010. In contrast, the profit or loss from discontinuedoperations fell from c1,343 thousand in financial year 2009 to c-1,057 thousand in financial year2010. The decline in the profit or loss from discontinued operations was primarily attributable to animpairment loss of c2,665 thousand recorded on the reclassification of the assets and liabilities ofthe discontinued operations as a result of the sale of MOTEX.


In the first quarter of financial year 2010, MOTEX was reported under the profit or loss fromdiscontinued operations. Following the sale of MOTEX as at 30 September 2010, the consolidatednet loss for the first quarter of financial year 2011 no longer includes the profit or loss fromdiscontinued operations. The full amount of the consolidated net loss for the first quarter offinancial year 2011 was generated from continuing operations.

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Adler’s net assets as at 31 December 2008, 31 December 2009 and 31 December 2010 and31 March 2011 (IFRS)

The table below shows selected items in the consolidated balance sheet of the Company as at31 December 2008, 31 December 2009 and 31 December 2010 and 31 March 2011:

31 December 31 March2008* 2009* 2010* 2011

c’000(audited)

c’000(audited)

c’000(audited)

c’000(unaudited)

ASSETSNon-current assets ........................................... 88,891 72,644 67,501 67,989

Intangible assets.............................................. 5,067 2,560 2,994 3,123Property, plant and equipment ........................ 80,741 63,760 52,215 50,708Investment property......................................... — 3,374 3,374 3,374Other receivables and other assets................. 1,027 707 649 642Deferred tax assets ......................................... 2,056 2,243 8,269 10,142

Current assets 101,033 132,325 95,214 101,252Inventories ....................................................... 62,539 53,600 56,749 78,281Trade receivables ............................................ 3,657 602 1,338 1,935Other receivables and other assets................. 9,620 41,132 3,908 6,871Cash and cash equivalents ............................. 25,217 36,991 32,956 13,902

Total ASSETS .................................................... 189,924 204,969 162,715 169,241

EQUITY and LIABILITIESCapital and reserves

Subscribed capital ........................................... 15,860 15,860 15,860 15,860Capital reserves............................................... 85,057 138,157 101,001 101,001Net accumulated losses .................................. -75,371 -87,743 -75,694 -85,545

Non-controlling interests ................................. — — — —Total equity........................................................ 25,546 69,274 41,167 32,316

LIABILITIESNon-current liabilities ....................................... 63,886 54,520 47,165 44,200

Provisions for pensions and other employeebenefits ........................................................... 3,547 3,323 4,607 4,535Other provisions .............................................. 1,059 904 1,044 1,110Financial liabilities............................................ 4,995 4,802 4,360 4,295Finance lease obligations ................................ 54,222 45,178 36,277 33,824Other liabilities ................................................. — — 249 —Deferred tax liabilities ...................................... 63 313 628 436

Current liabilities............................................... 100,492 81,175 74,383 92,725Other provisions .............................................. 16,375 4,661 2,792 2,602Financial liabilities............................................ 15,840 13,572 14,213 17,086Finance lease obligations ................................ 8,578 9,008 9,762 9,821Trade payables................................................ 34,721 33,135 27,829 45,338Other liabilities ................................................. 23,856 19,553 19,502 17,533Income tax liabilities ........................................ 1,122 1,246 285 345

Total liabilities ................................................... 164,378 135,695 121,548 136,925

Total EQUITY and LIABILITIES 189,924 204,969 162,715 169,241

* The comparability of the financial information presented in this table for financial years 2009 and 2010 is to some extent limited.For further details please see ‘‘Background to the financial information contained in the Offering Memorandum and factorsaffecting its comparability’’.

Adler’s balance sheet total rose by 7.9% from c189,924 thousand as at 31 December 2008 toc204,969 thousand as at 31 December 2009 and fell by 20.6% to c162,715 thousand as at31 December 2010. Adler’s balance sheet total rose to c169,241 thousand as at 31 March 2011.

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Selected balance sheet items are explained in more detail in the following paragraphs:

Assets

Non-current assets comprise intangible assets, property, plant and equipment, investment property,other receivables and other assets, and deferred tax assets. Current assets comprise inventories,trade receivables, other receivables and other assets, and cash and cash equivalents.

Intangible assets

The intangible assets comprise internally generated software as well as purchased software, rightsand licences. The internally generated intangible assets represent capitalised development costs forlogistics software and for a computer-based incentive pay system. Intangible assets declined fromc5,067 thousand as at 31 December 2008 to c2,560 thousand as at 31 December 2009 and roseagain to c2,994 thousand as at 31 December 2010 and to c3,123 thousand as at 31 March 2011.

The main reason for the reduction in intangible assets as at 31 December 2009 was therecognition of impairment losses amounting to c1,439 thousand on internally generated intangibleassets. An impairment charge of c448 thousand was also recorded in respect of the ‘‘VIVENTY byBernd Berger’’ brand. As a result of negative gross income relating to the ‘‘VIVENTY by BerndBerger’’ line, the intangible asset was written off in full.

The increase of c434 thousand in intangible assets as at 31 December 2010 was mainly due tothe recognition of goodwill on the first-time consolidation of F.W. Woolworth Co. Ges.m.b.H. Thisaddition was offset to a small extent by the disposal of intangible assets with a carrying amount ofc26 thousand as a result of the sale of MOTEX.

The further growth in intangible assets to c3,123 thousand as at 31 March 2011 was mainly due toprepayments made for the introduction of RFID, currently at the test stage, which were higheroverall than the amortisation charged on intangible assets in the first quarter of financial year 2011.

Property, plant and equipment

Property, plant and equipment mostly comprises leased land and buildings attributable to the Groupas economic owner as a result of the structure of the underlying lease agreements. The remainingitems of property, plant and equipment consist mainly of the fixtures and fittings of the Adlerstores. Property, plant and equipment changed from c80,741 thousand as at 31 December 2008 toc63,760 thousand as at 31 December 2009 and c52,215 thousand as at 31 December 2010 andc50,708 thousand as at 31 March 2011 therefore declined over the period under review as awhole.

The lower figure for property, plant and equipment as at 31 December 2009 mainly reflects adecline from c21,242 thousand as at 31 December 2008 to c14,405 thousand as at 31 December2009 in the net book value of land and buildings (including buildings on third-party land), primarilydue to the reclassification into investment property of an item of land and a building held by theconsolidated special purpose entity ALASKA GmbH & Co. KG. An additional factor was thereduction in the net book value of buildings held under finance leases from c39,963 thousand as at31 December 2008 to c33,397 thousand as at 31 December 2009 as a result of depreciation andthe disposal of a store. The net book value of other operating and office equipment fell fromc17,181 thousand as at 31 December 2008 to c13,833 thousand as at 31 December 2009 as aresult of depreciation, which exceeded additions.

The further decline in property, plant and equipment as at 31 December 2010 was mainly due todepreciation charged on property, plant and equipment which exceeded investments, and to thedisposal of MOTEX. The sale of MOTEX had a particular impact on technical equipment andmachinery which declined from a net book value of c2,086 thousand as at 31 December 2009 toc0 thousand as at 31 December 2010. In previous years, this item comprised the high-rackwarehouse and preparation facilities of MOTEX. The net book value of buildings held under financeleases fell from c33,397 thousand as at 31 December 2009 to c27,977 thousand as at31 December 2010 mainly due to depreciation charged, although this was offset to a small extentby the addition of a further finance lease agreement amounting to c940 thousand. Other operatingand office equipment declined by c2,655 thousand to a net book value of c11,178 thousand as at31 December 2010. The increase of c356 thousand in the carrying amount resulting from theacquisition of F.W. Woolworth Co. Ges.m.b.H. was outweighed by the disposal of items with a netbook value of c637 thousand as a result of the sale of MOTEX, together with depreciation chargedof c1,911 thousand.

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As at 31 March 2011, this trend continued. The carrying amount of property, plant and equipmentdeclined by c1,507 thousand to c50,708 thousand. Investments in property, plant and equipmentamounting to c1,687 thousand in the first quarter of financial year 2011 were outweighed bysignificantly higher depreciation charged. The majority of the depreciation charged on property,plant and equipment related to properties classified as finance leases which recorded no newadditions in the first quarter of 2011.

Property, plant and equipment amounting to c5,914 thousand as at 31 December 2008, c639thousand as at 31 December 2009 and c618 thousand as at 31 December 2010 and c613thousand as at 31 March 2011 served as security for financial liabilities.

Investment property

Investment property consists of an item of land and a building held by the consolidated specialpurpose entity ALASKA GmbH & Co. KG, which was reclassified into investment property out ofproperty, plant and equipment during financial year 2009 as the building was no longer utilised inits entirety by the Adler Group and was intended to be let for the most part. Accordingly,investment property amounting to c3,374 thousand was reported in the consolidated balance sheetfor the first time as at 31 December 2009. At the date of reclassification in financial year 2009, thisresulted in the recognition of an impairment loss amounting to c900 thousand.

Since there was no change in the fair value of the property in financial year 2010 or in the firstquarter of 2010, the carrying amount as at 31 December 2010 and at 31 March 2011 remained atc3,374 thousand.

The full amount of investment property as at 31 December 2009 and as at 31 December 2010 andat 31 March 2011 served as security for financial liabilities.

Other receivables and other assets

In addition to payments into a money market fund for the purpose of covering partial retirementcommitments that are held in trust on a long-term basis, other receivables and other assets mainlycomprise receivables from related parties together with tax receivables and prepaid expenses. Adistinction is made between non-current and current other receivables and other assets. Non-current other receivables and other assets declined from c1,027 thousand as at 31 December 2008to c707 thousand as at 31 December 2009 and fell further to c649 thousand as at 31 December2010 to c642 thousand as at 31 March 2011. Current other receivables and other assets grewfrom c9,620 thousand as at 31 December 2008 to c41,132 thousand as at 31 December 2009 andto c3,908 thousand as at 31 December 2010 and c6,871 thousand as at 31 March 2011.

The main reason for the increase in current other receivables and other assets as at 31 December2009 was a short-term receivable for c36,407 thousand due from the affiliated company AdlerTreasury GmbH which was originated in financial year 2009 as a result of the grant of a loan. Incontrast, receivables from related parties as at 31 December 2008 amounted to only c5,051thousand and consisted of short-term receivables due from the parent company at that time,AMODA GmbH. Of the total amount, c2,780 thousand represented an amount due to the Companyin respect of losses assumed under the profit and loss transfer agreement. In addition, taxreceivables rose from c1,829 thousand as at 31 December 2008 to c2,156 thousand as at31 December 2009. The entire amount of the latter comprised income tax receivables due toforeign companies as a result of overpayments in the current and previous financial year.

The decline in current other receivables and other assets as at 31 December 2010 was mostly dueto the assignment to AMODA GmbH of the loan receivable due from the affiliated company AdlerTreasury GmbH, which amounted to c36,407 thousand as at 31 December 2009, offset by awithdrawal from capital reserves in financial year 2010. Current prepaid expenses as at31 December 2010 include an amount of c158 thousand representing expenditure deferred for thefirst time in connection with the planned capital increase for the IPO which is the subject of thisOffering Memorandum.

The main reason for the growth in other receivables and other assets as at 31 March 2011 wasthe increase in prepaid expenses. The majority of the annual insurance premiums and the annualcharges for the tills and computer maintenance contracts are paid at the beginning of eachfinancial year. The payments are recorded as prepaid expenses so that the expense is allocated tothe periods to which it relates. Furthermore, the costs of the IPO incurred to date are recorded asprepaid expenses until they are able to be offset against the proceeds of the issue at the date ofthe IPO. Since a substantial portion of the costs of the IPO was incurred in the first quarter of

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financial year 2011, there was a significant increase in prepaid expenses. An additional factor wasthat payments in advance for marketing activities such as TV advertising, which will not take effectuntil later in the financial year, were recorded under other receivables.

Deferred tax assets

Current deferred tax assets changed from c2,056 thousand as at 31 December 2008 to c2,243thousand as at 31 December 2009 and c8,269 thousand as at 31 December 2010 to c10,142thousand as at 31 March 2011. The termination of the profit and loss transfer agreement betweenthe Company and AMODA GmbH as at 31 December 2010 resulted in the first-time recognition ofdeferred taxes by the Company, reflected in a substantial increase in deferred tax assetscompared with prior years. For information relating to the effects of the profit and loss transferagreement between the Company and AMODA GmbH terminated as at 31 December 2010, pleasesee ‘‘Significant factors affecting the financial condition and results of operations – Company-related factors – Profit and loss transfer agreement between the Company and AMODA GmbH’’.As at 31 March 2011, deferred tax assets rose by a further c1,873 thousand to c10,142 thousand.Deferred tax assets were required to be recognised in the first quarter of 2011 in respect of thetaxable loss arising by the end of the quarter. The amount of the deferred tax assets wascalculated on the basis of an actual tax calculation for the first quarter of 2011.

Inventories

Inventories mainly comprise merchandise. Inventories changed from c62,539 thousand as at 31December 2008 to c53,600 thousand as at 31 December 2009, c56,749 thousand as at 31December 2010 and c78,281 thousand as at 31 March 2011, mainly as a result of factors relatingto the reporting date. The significant increase in inventories as at 31 March 2011 was mainly dueto peak periods for purchases of goods which arise in particular in the months of February andMarch as a result of the seasonal nature of demand for Adler’s clothing. For example, towards theend of the first quarter of the financial year Adler receives most of the summer collection that willbe sold in the subsequent months. The consequence of this is a substantial rise in inventories asat 31 March of each financial year. A similar peak period for purchases arises in the months ofAugust and September when Adler receives the majority of the winter collection that will be sold inthe subsequent months (for further information, see also ‘‘Significant factors affecting the financialcondition and results of operations – Market and sector-related factors – Seasonal fluctuations’’).

Trade receivables

Trade receivables declined from c3,657 thousand as at 31 December 2008 to c602 thousand as at31 December 2009 and increased to c1,338 thousand as at 31 December 2010 to c1,935thousand as at 31 March 2011. As at 31 December 2008, trade receivables were mostly due fromsubsidiaries of METRO AG (affiliated companies). The reason for the decline in trade receivablesas at 31 December 2009 was mainly the reduction in trading with companies in the METRO groupafter the Company and its subordinate affiliated companies left the METRO group. Of the totaltrade receivables reported at 31 December 2010 amounting to c1,338 thousand, an amount ofc1,258 thousand represented trade receivables due from MOTEX, which is an affiliated company ofthe Company following its sale with effect as at 30 September 2010. The further growth in tradereceivables as at 31 March 2011 mainly reflected the receivable due from the shareholder inrespect of its proportionate participation in the costs of the IPO.

Cash and cash equivalents

Cash and cash equivalents are comprised of cash-in-hand and balances with banks. Cash andcash equivalents rose from c25,217 thousand as at 31 December 2008 to c36,991 thousand as at31 December 2009 and declined to c32,956 thousand as at 31 December 2010 to c13,902thousand as at 31 March 2011.

The increase in cash and cash equivalents as at 31 December 2009 was accounted for primarilyby higher balances with banks of c33,579 thousand as at 31 December 2009 compared withc21,398 thousand as at 31 December 2008.

The lower figure of c32,956 thousand as at 31 December 2010 mainly reflected the reduction inbalances with banks from c33,579 thousand as at 31 December 2009 to c29,370 thousand as at31 December 2010.

The seasonal decline of c19,054 thousand in cash and cash equivalents to c13,902 thousand as at31 March 2011 was mainly due to the sharp increase in purchases of inventories in the first

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quarter of each financial year, which is usually reflected in a greater outflow of liquidity in order tosettle liabilities to suppliers in the first quarter of each financial year.

Equity

Adler’s equity rose from c25,546 thousand as at 31 December 2008 to c69,274 thousand as at31 December 2009 and declined to c41,167 thousand as at 31 December 2010 to c32,316thousand as at 31 March 2011.

The principal reason for the increase in equity as at 31 December 2009 was the growth in capitalreserves from c85,057 thousand as at 31 December 2008 to c138,157 thousand as at31 December 2009. The increase was made up of two contributions to capital reserves amountingto c25,600 thousand and c13,000 thousand, together with an income subsidy amounting toc14,500 thousand granted by the shareholder, which is not reported as income under therequirements of IFRS but is added directly to capital reserves. A substantial portion of the additionsto capital reserves was used to offset losses.

The principal reason for the decline in equity to c41,167 thousand as at 31 December 2010 wasthe reduction in capital reserves from c138,157 thousand as at 31 December 2009 to c101,001thousand as at 31 December 2010. The latter reflected a withdrawal from capital reserves ofc39,228 thousand, offset by an increase in capital reserves amounting to c1,572 thousand and anincome subsidy of c500 thousand granted by the shareholder, which was not reported as incomeunder the requirements of IFRS but was added directly to capital reserves. The withdrawal fromcapital reserves amounting to c39,228 thousand took the form of the assignment of a portion of areceivable due from Adler Treasury GmbH to AMODA GmbH for the same amount. The increasein capital reserves of c1,572 thousand was effected by offsetting a portion of the liability for theprofit and loss transfer for the previous year. The reduction in equity to c32,316 thousand as at 31March 2011 was solely due to the consolidated net loss in the first quarter of financial year 2011incurred as a result of seasonal factors. There were no other changes.

Liabilities

Non-current liabilities comprise provisions for pensions and other employee benefits, otherprovisions, financial liabilities, finance lease obligations and deferred tax liabilities. Current liabilitiescomprise other provisions, financial liabilities, finance lease obligations, trade payables, otherliabilities and income tax liabilities. Liabilities fell by 17.5% from c164,378 thousand as at31 December 2008 to c135,695 thousand as at 31 December 2009 and by a further 10.4% toc121,548 thousand as at 31 December 2010 and rose by 12.7% to c136,925 thousand as at 31March 2011.

The main reasons for the decline in liabilities as at 31 December 2009 were the reduction infinance lease obligations from c62,800 thousand as at 31 December 2008 to c54,186 thousand asat 31 December 2009 and lower current other provisions of c4,661 thousand as at 31 December2009 compared with c16,375 thousand as at 31 December 2008.

The continued fall in liabilities in financial year 2010 was primarily due to the further reduction infinance lease obligations from c54,186 thousand as at 31 December 2009 to c46,039 thousand asat 31 December 2010 and lower trade payables of c27,829 thousand as at 31 December 2010compared with c33,135 thousand as at 31 December 2009.

The main reason for the higher liabilities as at 31 March 2011 was the rise in trade payables fromc27,829 thousand as at 31 December 2010 to c45,338 thousand as at 31 March 2011 due toseasonal factors.

Further details of the principal changes in liabilities are given in the following paragraphs:

Provisions for pensions and other employee benefits

Provisions for pensions and other employee benefits comprise capital commitments to employeeswho began their employment with the Company prior to 1980 and individual commitments to thefounders of the firm and certain former members of management. Provisions for pensions andother employee benefits amounted to c3,547 thousand as at 31 December 2008 and c3,323thousand as at 31 December 2009 and were therefore relatively unchanged. The increase ofc1,284 thousand to c4,607 thousand as at 31 December 2010 was mostly due to the acquisition ofF.W. Woolworth Co. Ges.m.b.H., as a result of which the Adler Group acquired pension provisionsamounting to c1,495 thousand. Provisions for pensions and other employee benefits fell slightly toc4,535 thousand as at 31 March 2011.

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Other provisions

Other provisions comprise provisions for restructuring costs/termination payments, rent andincidental rental expenses, litigation risks, other provisions for personnel expenses and otherprovisions.

Non-current other provisions remained at a consistently low level during the whole of the periodunder review, amounting to c1,059 thousand as at 31 December 2008, c904 thousand as at31 December 2009 and c1,044 thousand as at 31 December 2010 and c1,110 thousand as at 31March 2011.

Current other provisions fell from c16,375 thousand as at 31 December 2008 to c4,661 thousandas at 31 December 2009 and declined further to c2,792 thousand as at 31 December 2010.Current other provisions remained relatively unchanged as at 31 March 2011 at c2,602 thousand.

The lower figure for current other provisions as at 31 December 2009 mainly reflected thereduction in provisions for restructuring expenses from c13,763 thousand as at 31 December 2008to c1,843 thousand as at 31 December 2009. The obligations arising from the restructuringprogramme included expenses in connection with the closure of Adler stores in financial years2008 and 2009, in addition to provisions for termination costs. The majority of the provisions wasutilised in financial year 2009.

The further decline in other current provisions to c2,792 thousand as at 31 December 2010 wasmainly attributable to the additional utilisation of restructuring provisions amounting to c1,533thousand. On the other hand, the acquisition of F.W. Woolworth Co. Ges.m.b.H. gave rise to anincrease in other current provisions of c191 thousand. In contrast, the disposal of MOTEX resultedin a reduction in other current provisions as at 31 December 2010 amounting to c117 thousand.

Financial liabilities

Non-current financial liabilities, which consisted over the whole period under review solely ofliabilities of the consolidated special purpose entity ALASKA GmbH & Co. KG to METRO FinanceB.V. with a maturity of more than one year, fell from c4,995 thousand as at 31 December 2008 toc4,802 thousand as at 31 December 2009 and c4,360 thousand as at 31 December 2010 andc4,295 thousand as at 31 March 2011. The non-current liability to METRO Finance B.V. representsa loan maturing on 31 July 2024 which is being repaid in quarterly instalments. The changes infinancial years 2009 and 2010 and Q1 2011 reflected the scheduled repayments of the loan.

Current financial liabilities comprise the current portion of the loan from METRO Finance B.V.,liabilities to banks with a maturity of less than one year and liabilities in connection with Adler’scustomer card whose maturity is also normally less than one year.

Current financial liabilities declined from c15,840 thousand as at 31 December 2008 to c13,572thousand as at 31 December 2009 and rose to c14,213 thousand as at 31 December 2010 andc17,086 thousand as at 31 March 2011.

The current liabilities in connection with Adler’s customer card, which developed from c15,765thousand as at 31 December 2008 to c13,526 thousand as at 31 December 2009 and c13,858thousand as at 31 December 2010 to c16,835 thousand as of 31 March 2011, arose from discountentitlements not yet utilised by customers who had settled their purchases using the Adlercustomer card. The customers can offset the discount entitlement obtained from making apurchase against a subsequent purchase or can have the amount paid in cash. The rise in thecurrent liabilities from the Adler customer card reflected the fact that the liabilities increase duringthe year without affecting cash. Customers’ discount entitlements do not expire until 31 Decemberof each financial year. As a result, in the first quarter of the financial year there was only anincrease in customers’ discount entitlements, which was higher than the customer discountsactually redeemed. But there is no reversal of the liabilities as a result of the expiry of entitlementsin the first quarter of a financial year.

As at 31 December 2008, the financial liabilities were secured by property, plant and equipmentwith a carrying amount of c5,194 thousand. As at 31 December 2009, the financial liabilities weresecured by items of property, plant and equipment with a carrying amount of c639 thousand andby investment property with a carrying amount of c3,374 thousand. As at 31 December 2010, thefinancial liabilities were secured by items of property, plant and equipment with a carrying amountof c618 thousand and by investment property with a carrying amount of c3,374 thousand. As at31 March 2011, the financial liabilities were secured by items of property, plant and equipment with

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a carrying amount of c613 thousand and by investment property with a carrying amount of c3,374thousand.

Finance lease obligations

Finance lease obligations relate to assets classified under licences and land and buildings that areattributable to the Group as economic owner as a result of the structure of the underlying leaseagreements. The finance lease agreements relate principally to leased buildings for stores. Financelease obligations declined from c62,800 thousand as at 31 December 2008 to c54,186 thousandas at 31 December 2009 and to c46,039 thousand as at 31 December 2010 and c43,645thousand as at 31 March 2011. Of the total amount, current finance lease obligations with a termof less than one year accounted for c8,578 thousand as at 31 December 2008, c9,008 thousandas at 31 December 2009 and c9,762 thousand as at 31 December 2010 and c9,821 thousand asat 31 March 2011. Non-current finance lease obligations with a term of one year or moreamounted to c54,222 thousand as at 31 December 2008, c45,178 thousand as at 31 December2009 and c36,277 thousand as at 31 December 2010 and c33,824 thousand as at 31 March 2011.

The reduction in non-current finance lease obligations as at 31 December 2009 was mainly due toscheduled repayments and the termination of a rental agreement.

The further decline as at 31 December 2010 was mainly due to the continuing scheduledrepayments of the liabilities, although this was offset by the addition of a finance lease agreementfor an Adler store amounting to c940 thousand.

As in previous years, the renewed fall in finance lease liabilities as at 31 March 2011 resulted fromthe scheduled repayment of the liabilities. At the same time, no new finance lease agreementswere entered into in the first quarter of financial year 2011.

Trade payables

Trade payables, which mainly arose from deliveries of goods, fell from c34,721 thousand as at31 December 2008 to c33,135 thousand as at 31 December 2009 and c27,829 thousand as at31 December 2010 against the background of shorter target payment dates which Adler used toobtain discounts in some cases. As at 31 March 2011 trade payables increased by c17,509thousand to c45,338 thousand. The sharp rise reflected peak periods for purchases of goods as aresult of the seasonal procurement policy normal for the sector. The growth in inventories due topurchases for the summer collection in the months of February and March generally also results inhigher trade payables. As a result of the seasonal nature of demand for clothing, Adler’s peakperiods for purchases of goods and therefore higher financing requirements are in the months ofFebruary and March, and August and September. Adler endeavours to reduce its peak financingrequirements and also to manage its liquidity by agreeing longer-term target payment dates, withpayment due in some cases only after the products have been sold. All of the trade payables weredue within one year at the respective balance sheet date.

Other current liabilities

Other current liabilities mostly comprise liabilities for VAT, liabilities to AMODA GmbH, liabilities forwages and salaries, liabilities to customers for gift vouchers sold, liabilities for customs duties andwages tax, and accrued lease payments. Other current liabilities fell from c23,856 thousand as at31 December 2008 to c19,553 thousand as at 31 December 2009 and to c19,502 thousand as at31 December 2010 and c17,533 thousand as at 31 March 2011.

The main reasons for the lower amount of other current liabilities as at 31 December 2009 werethe decline in liabilities for wages and salaries from c5,351 thousand as at 31 December 2008 toc3,422 thousand as at 31 December 2009 as a result of the restructuring programme, one-timeliabilities from contract terminations of c1,500 thousand incurred as at 31 December 2008 and thefall in miscellaneous other current liabilities from c2,105 thousand as at 31 December 2008 toc513 thousand as at 31 December 2009. These declines were offset in particular by a rise in theliabilities to AMODA GmbH from c0 thousand as at 31 December 2008 to c4,216 thousand as at31 December 2010, of which c2,094 thousand resulted from the Company’s obligation to transferprofits and losses. As at 31 December 2010 the liability to AMODA GmbH consisted mainly of theprofit and loss transfer for financial year 2010 still outstanding. The original liability of c18,373thousand was offset against receivables due to the Company from AMODA GmbH with result thatthe amount of the liabilities declined to c3,968 thousand as at 31 December 2010.

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A number of different factors contributed to the continued decline in other current liabilities whichfell by c1,969 thousand to c17,533 thousand as at 31 March 2011. For example, liabilities forwages and salary payments rose by c746 thousand as a result of higher personnel expenses,while liabilities from customs duties increased by c1,419 thousand due to a greater volume ofpurchases of goods. In the other direction, the liabilities to AMODA GmbH or its legal successorfell by c522 thousand, while VAT liabilities declined by c3,459 thousand because revenue in Marchof financial year 2011 was lower than revenue in December of financial year 2010 and at the sametime in March of financial year 2011 there was a greater amount of purchases of goods for whichinput tax was deductible.

Income tax liabilities

Income tax liabilities relate to liabilities arising from corporation tax and trade tax. Income taxliabilities changed from c1,122 thousand as at 31 December 2008 to c1,246 thousand as at31 December 2009 and c285 thousand as at 31 December 2010 and c345 thousand as at 31March 2011 as a result of factors relating to the reporting date. As at 1 January 2008 there werealso provisions of c1,778 thousand for risks arising from a company tax audit for the period beforethe grouping of companies for tax purposes, and other income tax liabilities amounting to c24thousand. Thanks to an agreement with the tax authorities, the Company was able to reverse themajority of these amounts to profit or loss in financial year 2008.

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Adler’s financial position in financial years 2008, 2009 and 2010 and in the first quarter offinancial years 2010 and 2011 (IFRS)

The table below shows the Company’s consolidated statement of cash flows for financial years2008, 2009 and 2010 and for the first three months of financial years 2010 and 2011:


31 March2008* 2009* 2010* 2010 2011

c’000(audited)

c’000(audited)

c’000(audited)

c’000(unaudited)

c’000(unaudited)

I. Net cash flow from operating activitiesConsolidated profit (+)/loss (-) for the year

before tax ......................................................... -61,602 -7,101 22,935 -12,099 -10,856(+) Depreciation and amortisation on property,

plant and equipment and intangible assets....... 20,379 16,218 14,124 3,772 3,360(+) Impairment........................................................ 7,852 2,394 2,664 2,115 —Decrease (-) in pension provisions......................... -304 -225 -197 -62 -72Gains (-)/losses (+) from the sale of non-current

assets................................................................ -7,110 325 516 157 6Other non-cash income (-) and expenses (+) ........ 20,962 14,230 10,311 4,620 6,224Net finance costs ................................................... 6,191 3,141 581 329 894Interest received..................................................... 783 264 139 13 20Interest paid ........................................................... -686 -205 -168 -41 -48Income taxes paid .................................................. -464 -82 -462 -116 -115Increase (-)/decrease (+) in inventories ................. 2,136 7,617 -2,024 -14,231 -22,024Increase (-)/decrease (+) in trade receivables and

other receivables ............................................... 4,872 5,246 -179 1,660 -3,650Increase (+)/decrease (-) in trade payables, other

liabilities and other provisions ........................... -17,262 -34,599 -22,310 5,581 12,566Increase (+)/decrease (-) in other balance sheet

items.................................................................. 1,730 -31 -130 -223 55= Net cash from (+)/used in (-) operating

activities(net cash flow)................................................. -22,523 7,192 25,800 -11,845 -13,640

II. Cash flows from investing activitiesProceeds from disposals of non-current assets ..... 650 908 572 309 14Payments for investments in non-current assets ... -11,831 -3,750 -4,418 -564 -2,001Proceeds from the repayment of loans and short-

term deposits..................................................... 15,214 — — — —Cash outflow from sales of companies (net of cash

disposed of)....................................................... — — -376 — —Payments for acquisitions of companies (net of

cash acquired)................................................... — — -237 — —Payments for short-term deposits .......................... — -35,000 -12,300 — —= Net cash from (+)/used in (-) investing

activities ........................................................... 4,033 -37,842 -16,759 -255 -1,987Free cash flow ...................................................... -18,490 -30,650 9,041 -12,100 -15,627

III. Cash flows from financing activitiesCash flows from the issue (+) /repayment (-) of

current financial liabilities .................................. -1 — 57 — -57Losses assumed by shareholders.......................... — 2,780 — — —Repayments of borrowings..................................... -5,184 -222 -240 -59 -111Capital contributions by shareholders .................... 40,000 53,100 — — —Payments in connection with finance lease

liabilities............................................................. -16,605 -13,234 -12,893 -3,236 -3,259= Net cash from (+)/used in (-) financing

activities ........................................................... 18,210 42,424 -13,076 -3,295 -3,427

IV. Net increase (+)/decrease (-) in cash andcash equivalents ............................................. -280 11,774 -4,035 -15,395 -19,054

Cash and cash equivalents at beginning of period 25,497 25,217 36,991 36,991 32,956Cash and cash equivalents reclassified into non-

current assets held for sale............................... — — — -288 —Cash and cash equivalents at end of period.......... 25,217 36,991 32,956 21,308 13,902Net increase (+)/decrease (-) in cash and cash

equivalents ...................................................... -280 11,774 -4,035 -15,395 -19,054

* The comparability of the financial information presented in this table for financial years 2009 and 2010 is to some extent limited.For further details please see ‘‘Background to the financial information contained in the Offering Memorandum and factorsaffecting its comparability’’.

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The Company defines cash and cash equivalents as holdings of cash and cash equivalents lesscash subject to restrictions on disposal. Cash and cash equivalents developed from c25,497thousand as at 1 January 2008 to c25,217 thousand as at 31 December 2008, c36,991 thousandas at 31 December 2009 and c32,956 thousand as at 31 December 2010 and c13,902 thousandas at 31 March 2011. At all balance sheet dates, cash and cash equivalents comprised balanceswith banks, checks and cash-in-hand. There was no cash subject to restrictions on disposal duringthe period under review.

In accordance with IAS 7, the cash flows are classified as cash from or used in operating activities(net cash flow), investing activities and financing activities. The principal positive components of theAdler Group’s cash flow in financial years 2008 and 2009 were capital contributions fromshareholders. The latter amounted to c40,000 thousand in financial year 2008 and c53,100thousand in financial year 2009. They were offset in financial year 2008 in particular by cash usedin operating activities amounting to c22,523 thousand and in financial year 2009 by cash used ininvesting activities of c37,842 thousand in total, mainly in the form of payments for short-termdeposits. In contrast, significant positive net cash from operating activities of c25,800 thousand wasgenerated in financial year 2010, but this was slightly outweighed by net cash used in investingactivities amounting to c16,759 thousand together with net cash used in financing activitiesamounting to c13,076 thousand. A significant factor affecting operating cash flow in the first quarterof financial years 2010 and 2011 was the purchase of the summer collection in the months ofFebruary and March, which resulted in a higher outflow of cash for the purchase of inventories.

In addition, the following cash flows from discontinued operations are included in the consolidatedstatement of cash flows for financial years 2009 and 2010 as well as for the first three months offinancial year 2010 and 2011:


31 March2009 2010 2010 2011

c’000(audited)

c’000(audited)

c’000(unaudited)

c’000(unaudited)

Net cash from (+)/used in (-) operating activities(net cash flow) ................................................ 359 563 212 —

Net cash from (+)/used in (-) investing activities. -285 -131 -3 —Free cash flow ................................................... 74 432 209 —Net cash from (+)/used in (-) financing activities — — — —Net increase in cash and cash equivalents ... 74 432 209 —

In the first quarter of financial year 2010, MOTEX was reported under discontinued operations.Following the sale of MOTEX as at 30 September 2010, a distinction was no longer made in thefirst quarter of financial year 2011 between continuing operations and discontinued operations. Thewhole of the change in cash and cash equivalents in the first quarter of 2011 was thereforegenerated by the Adler Group’s continuing operations.

Adler’s financial position in financial years 2008, 2009 and 2010 developed in other respects asfollows:

Cash flows from operating activities (net cash flow)

Cash flows from operating activities (net cash flow) improved from c-22,523 thousand in financialyear 2008 to c7,192 thousand in financial year 2009 and c25,800 thousand in financial year 2010.

In comparison with the same quarter of the previous year, the net cash flow, which is on a regularbasis negative in the first quarter of a financial year due to seasonal factors, changed from c-11,845 thousand in the first quarter of financial year 2010 toc-13,640 thousand in the first quarter of financial year 2011.


The principal reason for the positive net cash flow in financial year 2009 was the improvement inthe consolidated loss before tax from c61,602 thousand in financial year 2008 to c7,101 thousandin financial year 2009.

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The continued improvement in cash flows from operating activities in financial year 2010 wasprimarily due to the consolidated profit for the year before tax of c22,935 thousand achieved infinancial year 2010. The effect was amplified by a reduction of c12,289 thousand compared withthe prior year in cash used in settling trade payables, other liabilities and other provisions. Thiswas offset by a small increase in inventories due to factors relating to the reporting date.


For seasonal reasons, the first quarter of the financial year generally reports negative cash flowsfrom operating activities. This is due to the substantial outflow of liquidity for the purchase of thesummer collection which normally takes place in the months of February and March. In the firstquarter of financial year 2011, the improvement in the consolidated net loss for the period tendedto have a positive effect on the cash flows from operating activities compared with the first quarterof financial year 2010. However, this effect was outweighed by the fact that Adler placedsignificantly higher orders for inventories in the first quarter of financial year 2011 than in the sameperiod of financial year 2010 in anticipation of higher expected sales for the year and as a result ofnewly opened stores. In the light of this, net cash flow changed from c-11,845 thousand in the firstquarter of financial year 2010 to c-13,640 thousand in the first quarter of financial year 2011.

Cash flows from investing activities

Cash flows from investing activities changed from c4,033 thousand in financial year 2008 toc-37,842 thousand in financial year 2009 and c-16,759 thousand in financial year 2010. Incomparison with the prior year, cash flows from investing activities changed from c-255 thousandin the first quarter of financial year 2010 to c-1,987 thousand in the first quarter of financial year2011.


The increase in net cash used in investing activities in financial year 2009 was mainly attributableto an increase in payments for short-term deposits from c0 thousand in financial year 2008 toc35,000 thousand in financial year 2009, which reflected the grant of a loan to the affiliatedcompany Adler Treasury GmbH. This was offset by a significant reduction in investments inproperty, plant and equipment which were initially cut back in connection with the restructuringprogramme.


Net cash used in investing activities in financial year 2010 was mostly attributable, in addition topayments for investments in non-current assets amounting to c4,418 thousand, to further paymentsfor short-term deposits amounting to c12,300 thousand as a result of the grant of an additionalloan to Adler Treasury GmbH. The loans extended to Adler Treasury GmbH were repaid infinancial year 2010 without affecting cash by means of an assignment offset against a withdrawalfrom capital reserves and by means of further offsetting against receivables due from AMODAGmbH.

Cash flows from investing activities for financial year 2010 include cash outflows as a result of thesale of MOTEX amounting to c376 thousand. This amount is made up of the purchase price forthe company of c135 thousand received by Adler less cash and cash equivalents amounting toc511 thousand disposed of as part of the sale. Cash flows from investing activities also includecash inflows arising from the acquisition of F.W. Woolworth Co. Ges.m.b.H. amounting to c237thousand. This amount is made up of the purchase price for the company of c1,761 thousand paidby Adler less cash and cash equivalents amounting to c1,524 thousand received by the AdlerGroup as part of the acquisition of the company.


The principal reason for the rise in cash used in investing activities from c255 thousand in the firstquarter of financial year 2010 to c1,987 thousand in the first quarter of financial year 2011 wasthat Adler incurred greater expenditure on investments in the first quarter of financial year 2011compared with the first quarter of financial year 2010. The investments mostly related to equipmentand fittings for new stores and the expansion of the brand shops.

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Cash flows from financing activities

Cash flows from financing activities changed from c18,210 thousand in financial year 2008 toc42,424 thousand in financial year 2009 and c-13,076 thousand in financial year 2010. Incomparison with the same quarter of the previous year, cash flows from financing activitieschanged from c-3,295 thousand in the first quarter of financial year 2010 to c-3,427 thousand inthe first quarter of financial year 2011.

The positive cash flows from financing activities in financial years 2008 and 2009 were primarilythe result of capital contributions by the shareholder amounting to c40,000 thousand in financialyear 2008 and c53,100 thousand in financial year 2009. Net cash used in financing activities infinancial year 2010 was mainly caused by payments in connection with liabilities from financeleases amounting to c12,893 thousand which reflected scheduled repayments of the liabilities.

The comparatively low figure for cash used in financing activities in the first quarter of financialyears 2010 and 2011 mainly represented scheduled repayments of finance lease liabilities in bothperiods.

Development of the Company’s net assets, financial position and results of operations infinancial years 2008, 2009 and 2010 (HGB)

The following analysis of the Company’s net assets, financial position and results of operations infinancial years 2008, 2009 and 2010 is based with respect to the financial information for thefinancial year ended on 31 December 2008 on the Company’s audited 2008 HGB Annual FinancialStatements, certified with an unqualified auditors’ report, and with respect to the financialinformation for the financial years ended on 31 December 2009 and 31 December 2010 on theCompany’s audited 2010 HGB Annual Financial Statements, certified with an unqualified auditors’report, reproduced elsewhere in this Offering Memorandum.

The sales of the Company in accordance with HGB declined from c424,594 thousand in financialyear 2008 to c364,164 thousand in financial year 2009 and rose to c390,899 thousand in financialyear 2010. The sales were generated mainly from the sale of textile goods in Germany.

The balance sheet total grew from c127,974 thousand as at 31 December 2008 to c150,214thousand as at 31 December 2009 and declined to c108,467 thousand as at 31 December 2010.On the asset side, this was mainly due to the changes in receivables from affiliated companieswhich rose from c17,081 thousand as at 31 December 2008 to c47,430 thousand as at31 December 2009 and declined to c9,560 thousand as at 31 December 2010. On the liabilitiesside, the most significant changes were in capital reserves which rose from c33,468 thousand asat 31 December 2008 to c72,068 thousand as at 31 December 2009 and fell back again toc34,412 thousand as at 31 December 2010 as a result of a withdrawal in financial year 2010. Inaddition, trade payables increased from c16,247 thousand as at 31 December 2008 to c29,021thousand as at 31 December 2009 and fell to c24,144 thousand as at 31 December 2010.

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MARKET AND INDUSTRY OVERVIEW


As one of the leading textile retailers in Germany, Austria and Luxembourg, and with more than 60years of tradition and a high level of customer loyalty, Adler is, in its own estimation, the marketleader among textile retailers for customers over 45 in Germany in the value price segment. Adleroffers a both broad and extensive range of womenswear, menswear and lingerie. With asupplementary range consisting of accessories, footwear, kidswear and babywear, traditional dress,sportswear and hardware products, Adler aims to round off its product portfolio and to exploitexisting cross-selling potential in its stores. Adler is currently focusing on large-space retailconcepts, i.e., the space occupied by the stores it operates is usually more than 1000 m2. Adler’sproduct portfolio consists mainly of own brands, the collections for which are designed andcompiled to a large extent by Adler itself, and then produced by external manufacturers. This issupplemented by a selected range of external brands. The products are distributed via a broadnetwork of currently 139 stores in Germany, Austria and Luxembourg, as well as an online store.

Adler generates the majority of its revenues in Germany. In 2010, Adler generated 80.1% of itsrevenues in Germany. Adler also operates through subsidiaries in Austria and Luxembourg. TheAdler Group plans to continue growing, both in Germany and, in the medium term, abroad, byopening new Adler stores and, where opportunities arise, through acquisitions.

The business development and the further growth of Adler shall depend on the generaldevelopment of demand in clothing retail in its sales markets and, in particular, among the targetcustomer groups. Consumer demand shall be determined significantly by general economicdevelopment and the resulting consumer mood.

The severe recession triggered by the financial crisis resulted in a significant shrinking of the globaleconomy up until the end of March 2009 and also had a material adverse effect on the grossdomestic product of Adler’s key sales markets. In the course of 2009, the economic trend initiallystabilised at a low level and then slowly recovered in the course of 2010 (source: Textile + FashionConfederation (Gesamtverband textil + mode), Reports on the Economy 01/2009-12/2010).Economic performance in the EU, where Adler generates all of its revenues, thus declined by 4.2%in 2009, measured in terms of gross domestic product (‘‘GDP’’) (source: Eurostat Press Office,Euro indicators press release, 34/2010, 4 March 2010 (‘‘Eurostat Press Release 34/2010’’)).Accordingly, consumer spending of private households in the fourth quarter of 2009 was initiallydown compared with the same quarter of 2008, decreasing by 1.1%; however, the Society forConsumer Research (Gesellschaft fur Konsumforschung, ‘‘GfK’’) forecasts an increase of around5% for 2010 (source: Eurostat Press Release 34/2010).

Economic growth, measured on the basis of GDP, was similar in Germany, Adler’s primary salesmarket. In the course of 2009, economic growth declined by 4.9% year-on-year, whereas theupturn in the German economy in 2010 led to an increase in GDP of 3.6% (source: GermanFederal Statistical Office, Press release 061 dated 24 February 2010; German Federal StatisticalOffice, Press release 074 dated 24 February 2011). In spite of an increase in private consumerspending in the first half of 2009, the overall increase in spending in 2009 was initially small(source: German Federal Statistical Office (Statistisches Bundesamt), Press release 061 dated 24February 2010). This upswing resulted in an overall improvement in the consumer climate.According to the GfK Consumer Climate Study, consumer confidence was at a three-year high in2010. The propensity to buy measured by the GfK also increased in 2010. Based on these values,and assuming that the positive economic trend will continue, the GfK forecasts a continuedincrease in real private consumer spending in 2010 (source: GfK market research, press releasedated 28 September 2010, Findings of the GfK Consumer Climate Study for September 2010).

In Austria, Adler’s second-largest market, GDP decreased by 0.9% in the fourth quarter of 2009,compared with the same quarter of the previous year (source: Eurostat Press Office, Euroindicators press release, 148/2010, 6 October 2010 (‘‘Eurostat Press Release 148/2010’’)). In itsforecast from December 2010, Oesterreichische Nationalbank (OeNB) projected growth in Austria’seconomic performance of 1.9% in 2010 (source: Eurostat, Statistics Austria, 2010-2012:Osterreichische Nationalbank forecast, December 2010). In Luxembourg, where Adler alsogenerates a portion of its revenues, GDP increased by 2.1% in the fourth quarter of 2009compared with the same quarter of the previous year (source: Eurostat Press Release 148/2010).For 2010, Germany Trade and Invest, Gesellschaft fur Außenwirtschaft und Standortmarketing

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mbH, forecast growth of 3% (source: Germany Trade and Invest, Economic trends compact(Wirtschafttrends kompakt), Luxembourg, mid-year 2010).

The clothing market

The textiles and clothing retail trade is one of the largest sectors of the retail industry. The marketvolume in the European clothing market, which is characterised by accelerated vertical integration,amounted to more than c301 billion in 2009 (source: Mintel Europe 2010). The German clothingmarket, which is Adler’s domestic market, is the largest clothing market in Europe. In Germanyalone, the retail industry generated turnover of around c56.5 billion from textiles and clothing in2009 (source: Institute of German Textile Retail Traders (Bundesverband des DeutschenTextileinzelhandels e.V., ‘‘BTE’’), Statement dated 18 January 2010).

The market data for the clothing market in the regions of relevance for Adler – Germany, Austriaand Luxembourg – is presented in the following.

Germany

The spending of German consumers on clothing and footwear increased continuously between2005 and 2008, from c65.93 billion in 2005 to c70.39 billion in 2008 (source: Mintel Europe 2010).Although the business situation in the clothing industry in the second half of 2008 was significantlyworse, due to the effects of the banking crisis, than in the retail industry as a whole, consumerspending of private households on clothing fell only slightly in 2009, to c69.86 billion (source:Mintel Europe 2010; Institute of German Textile Retail Traders (BTE), 2009 Statistics Report (‘‘BTEStatistics Report 2009’’)). Average spending on clothing items per capita amounted to c686 in2008, and was thus above the EU average of c581 in 2008 (source: Verdict, Value Clothing inEuropean Retail, September 2009, (‘‘Verdict Report 2009’’), p. 17). Clothing prices increased by0.4% in 2009 and by 0.9% in the first six months of 2010 (BTE, 2010 Statistics Report, p. 92).

The average gross revenue per square metre of retail space in the German clothing industry wasc3,500 in 2008, and was thus higher than the EU average of c2,980. Average store spaces inGermany, at an average of 255 m2, were the largest in the EU-wide comparison, which showed anaverage of around 161 m2 (source: Verdict Report 2009).

The market shares of the segments womenswear, menswear and kidswear amounted to 55.4%,30.8% and 13.8%, respectively, in 2008 (source: Datamonitor, Apparel Retail in Germany, IndustryProfile, p. 10). A significant portion of the revenue in the clothing retail industry in Germany isgenerated in the womenswear segment. Almost twice as much revenue is generated in thissegment on average than in the menswear segment. The clothing industry thus benefited from asteady growth in gross revenue in the womenswear segment, from c26.5 billion in 1998 toc28.7 billion in 2008, whereas the revenue generated through the sale of menswear only increasedfrom c14.6 billion in 1998, to c15.3 billion in 2008. A share of 59.6% of the revenues in thewomenswear segment in 2008 was generated from the sale of clothing, footwear, sportswear andaccessories in specialist shops. A total of 29.7% of the revenue was generated by departmentstores and 6.1% by supermarkets and discount stores; the rest was spread among a variety ofalternative sales channels (source: Datamonitor, Womenswear in Germany, Industry Profile, p. 10).A 44.9% share of the revenue in the menswear segment was generated in 2008 in specialistshops for clothing, footwear, accessories and luxury goods, while 36.8% was generated from salesin department stores and 9.4% from supermarkets and discount stores. The remaining revenuewas distributed among alternative sales channels (source: Datamonitor, Menswear in Germany,Industry Profile, p. 10). Revenue growth of 7.7% is forecast for the German clothing retail industryin the coming years, from c27.03 billion in 2010 to c29.11 billion in 2015 (source: Mintel Germany2010, p. 16).

The German clothing market is influenced by a large number of retailers. In spite of the marketconsolidation that has been emerging recently, the German clothing market remains highlyfragmented. More than 50 German clothing suppliers generate revenue of over c50 million, with theGerman market accounting for a significant share (source: TextilWirtschaft, Germany’s majorclothing suppliers 2009 (Die großten Bekleidungslieferanten in Deutschland 2009). The marketshares of the companies among the clothing suppliers or textile retailers that generate revenue ofc1 billion or more are limited to a few percent. Then there is a whole range of foreign companiesof different sizes that have established themselves on the German market. In Germany, the leadingcompanies in the clothing retail market in 2009 were C&A, with a market share of 9%, and H&M,

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with a market share of 8.7%, followed by Esprit (4.9%), KiK (4.9%) and Peek & Cloppenburg(4.6%) (source: Mintel Germany 2010, p. 20).

Austria

Consumer spending on clothing in Austria increased slightly between 2005 and 2009. In 2005,spending amounted to around c6.84 billion and, in 2009, c7.29 billion (source: Mintel ClothingRetailing Europe 2010, p. 9) This corresponds to a growth rate of 6.6%. Average spending onclothing items per capita amounted to c890 in 2009 (source: Verdict Report 2009, p. 17). Revenuein the Austrian clothing retail industry is expected to grow by 13.3% in the coming years, fromc4.5 billion in 2010 to c5.14 billion in 2015 (source: Mintel Europe 2010, p. 16, 22).

Market leaders in the clothing retail market in Austria in 2009 were H&M, with a market share of9.7%, and C&A, with a market share of 9.1%, followed by KiK (3.6%), Charles Vogele (3.6%) andNew Yorker (3.4%) (source: Mintel Europe 2010, p. 23).

Luxembourg

The retail industry in Luxembourg grew by 6.3% in the second quarter of 2010, thus achieving thehighest revenue growth within the EU (Eurostat, Economic Statistics, November 2010). In 2008, amarket volume of around c4.3 billion was generated in the clothing sector in Luxembourg.Compared with the previous year, this corresponded to growth of 1.9% (source: Verdict Report2009). Average spending per capita on clothing amounted to c889 in 2009 (source: Verdict Report2009, p. 17).

Market trends

In the Company’s opinion, the German, Austrian and Luxembourg clothing market for customersover 45 are in particular characterised by the following trends and growth drivers:

Segmentation of the clothing market. The clothing market is increasingly divided into clothing foryoung, fashion-conscious customers, on the one hand, and older customers, on the other (source:Mintel Germany 2010, p. 15). Companies operating in the clothing industry are accordingly facedwith the challenge both of attracting the growing number of younger customers who have an evermore pronounced interest in fashion, and maintaining the loyalty of older customers who are moreconservative in their choice of clothing (source: Mintel Germany 2010, p. 15, 17). This divergingdevelopment in the fashion market is being intensified further by demographic change in Germany.So, although younger customers are showing a greater willingness to invest in clothes, the declinein birth rates and the increased life expectancy mean that the proportion of older customers isgrowing. The over 50s are responsible for almost 50% of consumer spending in many goodscategories, including clothing (source: Federal Ministry of Family Affairs, Senior Citizens, Womenand Youth (Bundesministerium fur Familie, Senioren, Frauen und Jugend), Age: The driving forcebehind the economy, Final Report, July 2007, p. 2). In addition, the market is becomingincreasingly polarised into high-price fashion and luxury items, on the one side, and budgetfashion, on the other, which will shape market structures in coming years. Combined with thefurther penetration of, mostly foreign, vertically integrated companies, which are breaking openmarket structures with their monobrand concepts, this will mean – particularly for smaller, specialistretailers – an even more accelerated selection process. As a result, many small- and medium-sized specialist retailers operate their business as a franchisee of a successful verticallyintegrated company (source: KPMG Deutsche Treuhand-Gesellschaft AktiengesellschaftWirtschaftsprufungsgesellschaft, Commerce Trends 2010).

Growth of retailers in lower price segments. In 2009, European consumers initially resorted tobuying in particular goods in the lower price segment, due to the economic crisis and theassociated rise in unemployment and consumer reluctance (Mintel Germany 2010, p. 17). However,2010 was characterised by a slow, but steady economic recovery. Given a continuing recovery inthe markets and an increase in consumers’ average income, market commentators expect to see amovement by customers back to higher quality goods (Mintel Germany 2010, p. 17). Overall, theclothing market has become increasingly polarised in the past few years into high-price fashion andluxury products, on the one side, and very cheap fashion, on the other. Contrary to the purelydiscount segment, in particular the increase in the lower mid-price segment is attributable to themigration of consumers from the mid-price segment, as consumers are increasingly attaching valueto high-quality goods at an attractive price-performance ratio. In the Company’s opinion, this trendwill continue to shape market structures in the coming years.

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Revenue growth at vertically integrated companies and vertical partnerships. In addition to price,market-defining criteria on the current clothing market are the flexibility and the speed of responseof the retail industry. To ensure this, numerous vertical co-operation alternatives between industryand trade have emerged, which are being further developed and improved on an ongoing basis(source: TextilWirtschaft, BTE communication dated 5 February 2009 und 21 January 2010).Essentially, these consist of a joint, usually contractually fixed agreement concerning space leasing,goods placement, delivery times, limit and sales planning and the associated bundled presentationof the brand in a separate, defined area (source: TextilWirtschaft, TW study, Putting verticalpartnerships to the test – Trade survey findings (Vertikale Partnerschaften auf dem Prufstand –Ergebnisse einer Handelsbefragung), May 2008 (‘‘TW Study’’). The number of vertical partnershipsin Germany increased by 9.0%, from 51,000 in 2008 to 55,600 in 2009 (source: Konzept & MarktGmbH/TextilWirtschaft, Top Shops 2009, p. 10). The number of vertical partnerships is expected toincrease further within the next two years (source: TW Study). In particular foreign verticallyintegrated companies, for example H&M and Zara, have gained market share in Germany (source:KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprufungsgesellschaft,Commerce Trends 2010). A business survey conducted by the industry association TextilWirtschaftshowed, however, that many suppliers are not meeting the demands of the retail market, due,among other things, to a lack of professional support, a lack of professional space controlling,deficiencies in inventory management, a lack of risk sharing or poor coverage of the collections.Consequently, greater selection among vertical partnerships is expected in future, meaning thatcompetition between suppliers of vertical partnerships will also increase (source: TW Study).

Faster product and fashion cycles. A key trend in almost all sectors, but particularly in the fashionindustry, is the shortening of product life cycles and therefore the necessity to introduce new ormodified products onto the market at shorter and shorter intervals. Then there is the continuingelimination of seasonal purchasing. Whereas consumers used to buy new clothes at the beginningof each season, regardless of weather conditions, consumers now expect a product range thatcorresponds to the weather. Key drivers of this trend include the improvement in process efficiencyand the more intensive interaction between customers and companies (source: GS1 Germany &WP7 Partners (Bridge Project), Supply Chain Management in the European Textile Industry:Problem analysis and expected EPC/RFID benefits, July 2007). In particular the factor of timegives vertical systems significant competitive advantages. Acting upon trends and quicklyconverting these into marketable collections is and shall remain a crucial competitive advantage,according to KPMG (source: KPMG Deutsche Treuhand-Gesellschaft AktiengesellschaftWirtschaftsprufungsgesellschaft, Commerce Trends 2005 – Outlook for the food, fashion & footwearindustries, 2003).

Growing demand for socialwear. Besides price and quality, another factor that is increasinglyplaying a role in consumers’ purchase decisions is whether products have been produced incompliance with social and ecological standards. This also applies in particular to purchases ofclothing. The group of ethical consumers has grown significantly over the past few years.Particularly women, the more educated, and 48 to 67-year-olds have driven this trend forward.According to the Otto Group Trend Study 2009, this trend will continue in the coming years. A totalof 67% of those surveyed in this study said they occasionally or often purchased ethical products;65% intend to do this more often in future. In a representative consumer survey conducted by themarket research institute GfK, 43% of those surveyed said they considered at least occasionallywhether clothes they were purchasing were socialwear; 40% said they would give this (even) moreconsideration in future (source: TextilWirtschaft, Kundenmonitor, Socialwear, November 2008).

Expansion of shopping centres. The number of shopping centres in Germany has quadrupled since1990. Until 2009, the number of shopping centres increased to 414. These shopping centresoccupied a total retail space of around 13 million square metres in 2009, corresponding to anaverage of 31,000 square metres of space per shopping centre. Recently, successful andestablished centres have increasingly been extending their retail space, while older shoppingcentres are trying to make themselves more attractive by undertaking renovation measures(source: Konzept & Markt GmbH/TextilWirtschaft, Top Shops 2009).

Internationalisation and globalisation. The difficult conditions in the domestic market, as well as theenhanced attractiveness of in particular the geographically nearby Eastern European markets, haveenabled most companies to significantly increase their foreign expansion in the last few years. Thisquest for international presence and enlarged sales markets shall continue to be seen in future,too. Current trends show that companies are taking a more selective and more considered

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approach than they did a few years ago. Particularly in the textile industry, above all foreignvertically integrated companies successfully gained market share in Germany and maintained ahigh rate of expansion (source: KPMG Deutsche Treuhand-Gesellschaft AktiengesellschaftWirtschaftsprufungsgesellschaft, Commerce Trends 2010).

Growing importance of e-comerce. The Internet has effected a key change in the mail orderbusiness over the past few years and has contributed decisively to growth in the retail industry(BTE Statistics Report 2009). The original mail order industry – in other words, the sale of goodspredominantly on the basis of catalogues, press advertisements, leaflets, etc. from companies withno or just a small number of stationary retail outlets – which generated revenue of aroundc15.0 billion in 2007 with just over 6,100 companies, has largely been replaced by multi-channelsuppliers (source: BTE Statistics Report 2009). These companies use both catalogues and pressadvertising, and the Internet, to market their products, and, often, they also have their ownstationary stores (BTE Statistics Report 2009). Last year, more than 34 million people in Germanypurchased goods or services via the Internet. For 2010, the German E-Commerce and DistanceSelling Trade Association (Bundesverband des Deutschen Versandhandels, ‘‘BVH’’) forecast thatthe online share of total German mail order revenue, estimated at c29.7 billion, would amount to57%; in 2009, it had a share of 53% (source: BVH, E-commerce trends in Germany 2010 (BtC)).From a total of c15.4 billion of online spending on goods in Germany in 2009 (2008: c13.4 billion),the commodity group ‘‘Clothing, textiles and footwear’’ was the strongest generator of revenue, with38% (source: Business Technology Consulting AG (BTC), Distance selling and e-commerce inGermany (Versand- und Online-Handel in Deutschland) 2009 (B2C)). The market share attributableto clothing purchased via mail order is larger in Germany than in the rest of Europe (MintelGermany 2010, p. 13). For German mail-order businesses, e-commerce is a sales channel that isnot only becoming more and more important, but it is also a primary means through which toattract new customers. In a survey conducted among its member companies, the BVH discovered23.1% of all new customers each year are now attracted via the Internet. The proportion of onlinepurchasers among the regular customers of mail-order companies has now reached 29.9% (source:KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprufungsgesellschaft,Commerce Trends 2010). According to a forecast of the German Retail Federation(Handelsverband Deutschland, ‘‘HDE’’), online trading revenue is expected to increase by around10% in 2011 compared with 2010, to c26.1 billion (source: HDE, E-commerce Forecast 2010).

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REGULATORY ENVIRONMENT

Adler’s business is heavily influenced by the legislative framework in its core market Germany, aswell as in Austria and Luxembourg. In many cases, the development of Community law has meantthat the applicable laws, rules and regulations are shaped by European law requirements. Forexample, the EU has specified customs duties on imports of goods produced in non-EU countries,and member states are required to impose these duties. In addition, minimum product safety andtextile labelling standards are often stipulated in EU Directives. The standard industry rules andregulations applicable to Adler, particularly because it imports textile products from other countriesand engages in retail selling activities, are discussed below as they relate to Adler’s core market,Germany.

Customs law

The vast majority of the products sold by Adler are manufactured overseas. Adler’s suppliers, andnot Adler itself, import these products into Germany. However, Adler bears the customs duty eitherdirectly or indirectly. For example, for stock purchased by MGB in the Asia region, Adler hasagreed to assume all import duties. Customs duties do not have to be paid on all clothing importsfrom Asia. The customs duty on clothing imported from China to Germany is 12%, whereasclothing imported from Bangladesh is exempt from customs duty. Where the goods imported byAdler are exported from a country at a price that is lower than the price for which the same goodsare sold in the export country, Adler may also be subject to EU anti-dumping measures, such asanti-dumping customs duties.

Legal requirements for bringing products on to the market

The sale of clothing in Germany is subject to the provisions of the German Foodstuffs, ConsumerGoods and Animal Feed Code (Lebensmittel-, Bedarfsgegenstande- und Futtermittelgesetzbuch).This Act prohibits activities such as selling textiles that have been manufactured using certainchemicals. Criminal sanctions and substantial fines may be imposed if the legislative provisions arecontravened.

In addition, under the Textile Labelling Act (Textilkennzeichnungsgesetz), textile products may onlybe sold in Germany if they carry a label stipulating the textile composition and the respectivepercentage of each fibre. Documents verifying the facts on which the composition labels are basedmust be kept for two years. Any breach of these requirements is punishable as an administrativeoffence and may be subject to a fine of up to c5,000.

There is currently no obligation in Germany to specify the country of origin (‘‘made in …’’) fortextiles. However, attempts are being made at EU level to introduce labelling obligations of thiskind within the EU. In addition, most items of clothing carry a care label. In Germany, however,care labels are not yet a requirement. By contrast, textile products sold in Austria are required tocarry a care label. The common symbols used on care labels are trademarks registered in favourof GINETEX, an international association for textile care labelling. The care symbols may not beused without a licence from GINETEX. Adler possesses the relevant licences.

Consumer protection

Adler is subject to a range of general consumer protection laws because it sells its products toconsumers. These laws particularly include provisions relating to the sale of consumer goods,which guarantee greater protection of warranty rights under sales law, as well as rules limiting theapplication of standard terms and conditions. In addition, customers who purchase products viaAdler’s online shop have a cooling-off period pursuant to distance selling laws. Also applicable areEuropean laws prohibiting unfair trade practices, and in Germany the Unfair Competition Act(Gesetz gegen den unlauteren Wettbewerb). These laws prohibit, for example, certain particularlyaggressive or misleading trade practices. The contravention of consumer protection laws can giverise to claims for damages, injunctive relief, forfeiture of profits and also criminal sanctions. TheCompany is not aware of any claims or warnings against Adler based on the contravention ofconsumer protection laws.

Legal requirements for establishing and using retail establishments offering an assortment ofproducts classified as appropriate for inner city areas (zentrenrelevant)

Adler is currently focussing on large-space retail concepts, i.e., the space occupied by its stores isusually more than 1,000 m2. Adler stores are generally located outside the city centre. In Germany,

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the Federal Building Code (Baugesetzbuch, ‘‘BauGB’’) and the Federal Land Utilisation Ordinance(Baunutzungsverordnung, ‘‘BauNVO’’) essentially form the legal basis for retail planning controlsand retail site development. At state level (in the Bundeslander), state urban and regional planningand development laws also apply as a means of controlling the use of land for retail operations.Municipalities generally also develop retail trade policies which specify retail development targets.

Where the sales area of Adler stores exceeds 800 m2 and the total floor space exceeds 1,200 m2,the stores are, as large retail establishments offering an assortment of products (textiles) classifiedas appropriate for inner city areas, eligible for approval, provided the relevant site is zoned underthe land use plan as a special use or business district. Smaller Adler stores, in other words storeswith a sales area of 800 m2 or less, are also generally eligible for planning approval where theland concerned has commercial zoning under the land use plan. Municipalities do, however, havethe power to specify, in the land use plan, that land in such zones may not be used for retailestablishments that offer products classified as appropriate for inner city areas. Large Adler storesare eligible for approval at sites within an integrated and coherent settlement (im Zusammenhangbebautes Ortsteil) that do not fall under a land use plan (unzoned central district), provided there isalready another large retail establishment in the immediate vicinity. This does not apply if thecombination of retail establishments has the potential to harm central business and service districtsthat serve the local community or other local communities. In these districts, the municipality mayprevent the establishment of retail businesses by drawing up a land use plan, the sole purpose ofwhich is to exclude the use of land for retail activities. In unzoned outer districts, plans to establishretail stores are generally ineligible for approval in light of the numerous public interests potentiallyinvolved.

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BUSINESS


As one of the leading textile retailers in Germany, Austria and Luxembourg, and with more than 60years of tradition and a high level of customer loyalty, Adler is, in its own estimation, the marketleader among textile retailers for customers over 45 in Germany in the value price segment. Adleroffers both a broad and extensive range of womenswear, menswear and lingerie. With asupplementary range consisting of accessories, footwear, kidswear and babywear, traditional dress,sportswear and hardware products, Adler aims to round off its product portfolio and to exploitexisting cross-selling potential in its stores. Adler focuses on large-space retail concepts, i.e., thespace occupied by the stores it operates is usually more than 1,000 m2. Adler’s product portfolioconsists mainly of own brands, the collections for which are designed and compiled to a largeextent by Adler itself, and then produced by external manufacturers. This is supplemented by aselected range of external brands. The products are distributed via a broad network of currently139 stores in Germany, Austria and Luxembourg, as well as an online store.


Adler intends to continue with its assortment policy and to continue to gear its communicationstrategy and the layout of its stores to the over 45s. It will also increasingly focus on winning asnew customers those that are moving into the ever-growing age group of the over 45s. In this way,Adler aims to further expand what it believes to be a leading position in the primary segment itserves. Adler has already successfully implemented this strategy in some stores and has attractedan increasing number of new customers through the offering of selected external brands such ass.Oliver, Tom Tailor, Street One, Cecil, OneTouch and Mexx, as well as more stringent visualmerchandising and extensive modernisation of the shop fronts and interior design of its stores.Adler plans to continuously expand this concept to further stores. In addition, Adler intends toexpand its store network both organically and inorganically, in order to exploit economies of scaleand broaden its market position. As part of its organic growth, Adler aims to open 20-35 newstores each year between 2011-2013 in Germany and Austria depending on the market situtationand the market environment, although it would also like to selectively use opportunities that arisedue to the withdrawal of department store chains and small- and medium-sized retailers. In themedium term, Adler is also considering international expansion into bordering countries of Germanyand Austria with a similar age structure and physiognomy of the population. In future, Adler wouldalso like to achieve cost benefits, on the one hand, and further optimise internal processes, on theother, through the use of innovative technologies. For example, Adler is presently in the testingstage for the Group-wide introduction of RFID (radio-frequency identification), an electronic goodstracking and tagging system. By setting up an online shop in 2010, Adler also implemented amulti-channel sales strategy that aims to attract in particular new customers entering the over 45age group, as well as older, less mobile customers.

In financial year 2010, Adler, with its average of 4,174 employees, generated revenue in theamount of c444,809 thousand, thereof 80.1% in Germany, 16.8% in Austria and 3.1% inLuxembourg, and EBITDA of c37,849 thousand.

In the first quarter of the 2011 financial year, Adler generated revenue of c91,906 thousand.

History of Adler

The Adler Group dates back to a family business founded in 1948, which was part of the METROGroup from 1996 until 2009. Over the decades of its existence, Adler has built up a base ofregular customers, most of whom fall into the growing age group of over 45s. Starting in 2007,Adler began a rejuvenation strategy under its previous management and re-orientated its productportfolio to include a higher fashion grade and slim-fitting clothes. At the same time, the marketingstrategy was revised to target younger, fashion-conscious customers; marketing measures were

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reduced and a restructuring concept was introduced that provided, among other things, for theclosure and, in some cases, drastic reorganisation of stores. After this strategy proved to beunsuccessful, resulting in losses in 2009, the Adler Group was sold in 2009 to investment companybluO. The Adler management newly installed in 2009 corrected the rejuvenation strategy byrefocusing Adler’s product portfolio, in terms of fit and fashion grade, back on the needs andexpectations of the growing over 45 age group, and expanding it to include selected externalbrands. At the same time, proven marketing and sales measures were reactivated; a multi-channelstrategy was implemented with the launch of the online shop, stores that had been closed downwere reopened, and new stores were opened. As a result of these strategic measures, theofficiating Adler management led the Company’s operations back into profitability as early as thefourth quarter of 2009. The table below gives an overview of Adler’s history:

1948 Formation of the Company by Wolfgang Adler in Annaberg (Saxony)

1970 Opening of the first store at the new Company headquarters in Haibach (near Aschaffenburg)

1974 Launch of the Adler customer card

1981 Entry into Luxembourg market

1982 Sale of the Company to ASKO Deutsche Kaufhaus AG

1987 Entry into Austrian market

1990 Opening of 50th Adler store

1996 Sale of ASKO Deutsche Kaufhaus AG to the METRO Group

1998 Opening of 100th Adler store

2007 Start of rejuvenation strategy under previous management

2009 Sale of the Adler Group to investment company bluO, discontinuation of rejuvenation strategyand reorientation of the Company to the customer group over 45 years

2009 Acquisition of former Woolworth stores in Austria

2010 Launch of Adler online shop

2010 Sale of MOTEX Group to investment company bluO

2011 Legal reorganisation of the Company into a German stock corporation (Aktiengesellschaft)

Competitive strengths

In Adler’s view, it is one of the leading textile retailers in Germany, Austria and Luxembourg. It hastailored its product range, in terms of fit, fashion grade, functionality and quality, primarily to thegeneration of over 45s, whose share of the population will continue to grow. Adler presumes that itwill be able to gain further market share in its market and competitive environment. In this respect,Adler stands out because it combines the following competitive strengths:

Market leader in the growing market segment of customers over 45 according to its ownassessments. Based on its own assessments, Adler is the market leader among textile retailersfor customers over 45 in the value price segment. Adler is therefore successfully positioned in acustomer segment whose members, on average, have a higher level of purchasing power than therest of the German population. By focussing on this group, Adler consciously sets itself apart fromthe majority of its competitors, whose strategy is tailored to younger customers. In the Company’sopinion, the number of people aged over 45 will continue to increase in the years and decades tocome, due to the demographic trend. This assumption is corroborated by estimates of the GermanFederal Statistical Office (Statistisches Bundesamt), which predicts that the proportion of people inGermany aged 60 and above will increase continuously from 26.2% in 2010 to 38.9% in 2050(source: German Federal Statistical Office, Population of Germany by 2050 (BevolkerungDeutschlands bis 2050), per 2007). Adler therefore regards the 45+ customer group as a growingmarket segment in an overall market that is likely to stagnate over the next few years. For thisreason, Adler has tailored its business model to the needs and expectations of customers over 45.Its product range meets the requirements and expectations of customers over 45 in terms of fit,quality, durability and functionality. Adler’s communication and marketing strategy, and the layout ofits stores, are also geared to this customer group.

Attractive product range with fits tailored to men and women over 45, and establishedrange of plus sizes. Adler has an established product portfolio among customers over 45featuring a wide range of sizes and brands. The own brands it markets as part of its multi-brand

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strategy are primarily tailored to the needs of the over 45s. When building a range, Adlerconsiders, on the one hand, that today’s over 45s attach value to modern, fashionable clothing, butalso that they have different requirements in terms of fit and sizes. Most products are available notonly in standard sizes, but also in plus sizes and special sizes. This plays an important role for thecustomers targeted by Adler, since body proportions change with age, yet the range of suitable,attractive women’s and men’s fashion is considerably limited. Market research has shown, forinstance, that the range of trousers, blouses and dresses for women above size 46 is extremelysmall and the fit of the few products that are available is often poor (source: GfK TextilNews,Autumn 2010, p. 4). Adler’s product range, on the other hand, offers attractive, fashionableclothing, including larger dress sizes, and the clothes are tailored to fit older customers. With thebrands ‘‘Thea 42 Plus’’ for women and ‘‘Big Fashion’’ for men, Adler has also established twoexclusively plus size brands and was ranked 4th among all German textile retailers in this categoryof the Top Shops Study 2009 (source: Konzept & Markt GmbH/TextilWirtschaft, Top Shops 2009,p. 225). In GfK’s opinion, the market for larger sizes holds substantial sales potential (source: GfKTextilNews, Autumn 2010, p. 4). Adler considers itself well positioned with its offering in this marketsegment compared with its competitors, and therefore feels able to exhaust this sales potential to asignificant extent.

Vertically integrated business model with full information control over all elements of thevalue chain. In the Company’s opinion, providing the target group with an optimum supply of in-demand products and successfully implementing established trends is crucial to the success of ahighly customer-orientated fashion company that is positioned as a fashion follower. In addition toan attractive price-performance ratio, brand awareness and brand acceptance, decisive factorsinclude in particular the ability to offer fashion trends that are already established on the marketthat incite customers to purchase. Based on this consideration, Adler’s focus is on gearing itsproduct range to its target group. This requires consistent process management along the entirevalue chain, which can be controlled centrally and on all levels. The Company believes that Adlerachieves this through vertical integration of all elements of the value chain (development,production, logistics and distribution), accompanied by a high degree of process standardisationwithin its organisational structure. This vertical integration means that Adler can respond moreefficiently to changes in demand. This ensures that the current, in-demand products are always onthe sales floor in sufficient quantities, thus allowing an increase in sales density to be achieved.

Very high level of customer loyalty and satisfaction as well as brand awareness. Adler hasbeen awarded several prizes for customer satisfaction and has an established customer loyaltycard programme that has been rated in tests as particularly good. It also enjoys disproportionateawareness of its brand name and a very high level of customer loyalty. Adler enjoys broadacceptance among its customers, as the results of the nationwide competition ‘‘DeutschlandsKundenchampions’’ (Germany’s customer champions) show. This competition is organised by thebusiness magazine ‘‘Impulse’’, together with the German Society for Quality (Deutsche Gesellschaftfur Qualitat, DGQ) in Frankfurt and the market research institute Forum in Mainz with the aim ofidentifying companies from all industries that are achieving particularly high rates of customersatisfaction. Among the top 50 companies, all of which were awarded the ‘‘DeutschlandsKundenchampions’’ seal, Adler was ranked 3rd among the participating retailers in 2009, and 5th in2010. Adler was even awarded 1st place among textile retailers in both 2009 and 2010.

When it comes to customer loyalty, Adler’s customer card is of major importance. Adler issued itsfirst customer cards back in 1974 and gathered appropriate experience using this marketing tool. Infinancial year 2010, around 3.3 million customers used the Adler customer card and shopped atleast once in one of Adler’s stores. Overall, Adler generated around 90% of its revenue with theAdler customer card in financial year 2010, which, in the Company’s opinion, can be taken as anindication of the high proportion of regular customers in Adler’s customer base. According to astudy conducted by the magazine ‘‘Finanztest’’ from August 2010, Adler’s customer card is ‘‘almostideal’’ in comparison with 24 well-known card programmes (source: Consumer Reports (StiftungWarentest), Finanztest, 8/2010, p. 12). Assessment criteria for this review were the regular financialbenefit associated with the customer card, including outside of special promotional offers, thegeneral terms and conditions for collecting discounts and the way in which the companies handlecustomers’ personal data. As an incentive to use the customer card, Adler uses discount creditnotes, loyalty discounts, low prices for the alteration service, as well as competitions, gifts, freerewards, extended exchange rights and other benefits. Adler benefits from the multiple use of itscustomer card, because this enables it to analyse more precisely the shopping behaviour of its

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customers. Using this information, Adler can place target group-specific and thus efficientadvertising in the form of mailings, for example by addressing buyers of the ‘‘Big Fashion’’ ownbrand with advertising for precisely this own brand.

Due to its over 60 years of history, Adler has a strong brand. In surveys, awareness of the ‘‘Adler’’brand across all age groups was 70%; among women over 40, it was as high as 84% (source:Konzept & Markt GmbH/TextilWirtschaft, Top Shops 2009, p. 29 et seq.). In relation to the numberof stores it operates, awareness of Adler is therefore disproportionately high and is almost on thesame level as other textile retailers with a much higher store density (source: Mintel Germany2010, p. 18).

Attractive value-per-money perception. Adler regards itself as a value-for-money supplier,offering high-quality products at an attractive price-performance ratio. The customers Adler targets,particularly the group of over 45s, are needs-based customers. They tend to be conservative, long-term-orientated and have high standards, particularly with regard to the quality and durability of thegarments. The typical customers targeted by Adler mostly only react to fashion trends after thesehave perceptibly established themselves on the street and in the media. Adler attaches particularimportance to the use of good-quality materials and quality processing for all products. Adlerbelieves it has satisfied this quality demand in the last few years, which is reflected in particular inthe high level of customer satisfaction and the low return rate. In spite of this demand for quality,Adler is able to offer its customers a price that is still attractive. Adler achieves cost benefitsthrough its modular, standardised shopfitting concept, which allows flexible shop remodellingwithout changing the furnishings, dispenses with cost-intensive lifestyle elements and thussimultaneously communicates the value-for-money concept to customers. In addition, the majorityof Adler’s stores are not in high-priced city centre locations, but, rather, in large-scale retail parksor shopping centres on the periphery of cities or in rural areas. Adler can therefore achieve lowerlease prices and thus cost benefits, which it can pass on to its customers. At the same time, theselocations meet the needs of the customer group Adler is trying to attract, for whom parkingfacilities, being able to shop close to home and spacious store layouts are of great importance.Adler’s product prices are in the value price segment. This makes the products particularlyattractive to price-conscious customers. The demand for fashion at affordable prices has increasedsignificantly recently, which is reflected in the increased market share of textile discount retailersand clothing companies in lower price segments (source: Mintel Germany 2010, p. 17). Adlerpresumes that the demand for value clothing will grow further in the coming years. The attractiveprice-performance ratio of Adler’s products is a significant distinguishing feature compared withcompetitors. Adler sets itself apart both from the textile discount stores, whose products, althoughcheaper, are of a poorer quality, and from other clothing retailers, whose products are moreexpensive for the same or poorer quality, and who have less of a selection on offer. Adler intendsto further optimise the price-performance ratio of its products and thereby attract new customers.

Flexible, standardised retail space concept and location-specific tailoring of the productrange. Adler can adapt the product range of its stores at any time to cater to each location andlocal market conditions. It has designed five standard modules for all departments, each withdifferent space requirements. For instance, Adler can fit out a store in a location with a poor localoffering of lingerie with a large lingerie department. Conversely, at another location, Adler maychoose to have a very small lingerie department and, instead, have particularly large coredepartments (e.g. womenswear, trousers and knitwear), because the competition offers only asmall range locally for the needs-orientated, conservative customer. When laying out its stores,Adler is guided by the parameters of practicality, functionality, cost efficiency, brightness,cleanliness, clarity of arrangement and clear customer guidance, in order to highlight to thecustomer Adler’s image as a value-for-money supplier. Adler generally uses standard furnishingsand standard rear walls in its stores. Adler stores can therefore very quickly be re-modularised atvery little expense. If the local competitive environment changes, the store management canincrease or reduce the size of departments, as required, in a short time and without any majorexpense. Adler focuses on large-space retail concepts, i.e., the space occupied by the stores isusually more than 1,000 m2. Large-scale retail concepts distinguish themselves by acting as acustomer magnet, in other words, they generate customer frequency themselves. Small-spaceconcepts, on the other hand, merely skim off the customer frequency in their surrounding area, butare generally dependent on expensive prime locations as a result. Operators of large-scale retailconcepts like Adler, on the other hand, tend to be able to obtain lower lease prices per squaremetre, also because they are important customer magnets for operators of shopping centres and

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retail parks. The offering of spaces for retailers who can implement large-scale concepts has growncontinuously over the past few years, since large department store chains like Hertie and Karstadt,as well as a number of small retailers, have withdrawn from the market or are continuing towithdraw to some extent. Adler intends to exploit any expansion opportunities that arise from this.Due to its modular system, Adler is able to fit out spaces measuring between 700 m* and 4,000m* with a both sufficiently extensive and suitably broad product range. As part of its expansion,Adler is therefore able to exploit opportunities that arise due to the withdrawal of individualcompetitors better than competitors whose store concept is geared to a particular size of retailspace. Adler’s retail space concept also helps to reduce costs, because Adler is not tied to specificstore sizes and can therefore, at any time, utilise advantages that arise on less expensive retailspaces that are unsuitable for some competitors.

Experienced and qualified management and employees. Adler’s experienced management teamhas only been managing the Company since mid-2009, but has succeeded, within the space of afew months, in leading the Company out of the red and successfully repositioning it in the market.To do this, management focused on sustainable strategic measures with long-term cost-cuttingpotential, as well as on expansion through new store openings or the reopening of stores that hadjust previously been shut down. The officiating management team recognised very early on thepotential of the experienced Adler staff and ensured, in the spirit of ‘‘lean management’’ – byreducing the levels of hierarchy and discharging administrative functions – that in particular thesales staff in the stores can devote more time to advising customers. Adler’s management teamhas also taken personnel and organisational decisions to ensure that the individual stores are runby a team of middle management that is present on the sales floors and has plenty of scope forindependent decision-making. This contributes significantly to the flexibility of and customer loyaltyto the Adler organisation, and has also helped Adler to recruit a large number of qualified andexperienced employees from current or former competitors. Customer loyalty at Adler is alsoensured by the fact that fluctuation of the sales staff in Adler’s stores is low, in the Company’sopinion, compared with other (textile) retailers. The comparatively low level of fluctuation is alsofurthered by the fact that Adler prioritises compliance with social standards. Adler has a co-determined Supervisory Board and a Works Council, and has concluded a company wageagreement with trade union ver.di. Adler therefore consciously distinguishes itself from discountretailers, which have hit the headlines in recent years for paying low wages or infringing employeerights. A majority of Adler’s employees, i.e., more than 80% have already been with the Companyfor more than two years. More than 70% of Adler’s employees have even worked for the Companyfor more than 5 years. At an average age of 46, many of the Adler Group’s employees are thesame age as the primary target group of over 45s. The experienced staff of Adler were rankedamong the top 15 in both the ‘‘Staff’’ and ‘‘Service’’ categories in the 2009 Top Shops Study. Asthey have worked for the Company for many years, Adler’s employees have built up long-termrelationships with Adler customers, which has also contributed to the high proportion of regularcustomers in Adler’s customer base. Adler promotes customer orientation and service motivationthrough regular training of its sales staff by the responsible middle management team. In addition,in financial year 2010, Adler significantly increased the number of trainee positions. Due to a close-meshed monitoring system that is based, among other things, on the monthly deployment of testshoppers, the Adler management team is able to specifically target its training or other measuresto improve customer orientation and service quality.

Strategy

Adler considers itself to be a long-term-orientated supplier of high-quality, value-for-money, yetfashionable clothing, which meets in particular the needs and expectations of the over 45s with thisfocus. In 2007 and 2008, a radical rejuvenation strategy under Adler’s former management (whichincluded increasing the fashion grade of its products, marketing geared to younger customers andslim-fitting styles, as well as store closures) was unsuccessful. The new management teaminstalled in 2009 therefore corrected this strategy and, by refocusing on older customers, i.e., byadjusting in particular the product portfolio in terms of fit and fashion grade to the group of over45s, expanding the product range to include selected external brands, reactivating tried-and-testedmarketing and sales measures, (re-)opening stores and launching an online shop, succeeded inbringing the Company’s operations back into the black in the fourth quarter of 2009. Going forward,Adler is aiming to further extend what it considers to be its leading position in Germany, Austriaand Luxembourg in the market for men’s and women’s fashion for the over 45s in the value pricesegment, and to continue growing organically and inorganically, as appropriate, in the medium term

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in this growing market segment, both in the markets it has already penetrated and in new markets.In order to implement this overall strategy, Adler has set itself the following individual strategicobjectives:

Expansion of what the Company believes to be market leadership in the market segment ofcustomers over 45. Adler is aiming to further expand what it believes to be an already excellentposition in the fashion market for men and women over 45 in the value price segment, andbecome the market leader. The product and brand policy shall therefore continue to be tailoredprimarily to this target group, particularly with regard to fit, quality and the offering of fashionable,value-for-money clothing. The course taken by the previous management in 2007 and 2008, whichcalled, among other things, for drastic reorganisation of the stores by integrating cost-intensivelifestyle elements, and tailoring of the collections and marketing strategy to younger target groups,including modifications to the fits of the garments, was corrected by Adler’s current managementteam in 2009. Since 2009, therefore, Adler has instead consciously re-committed itself to the targetgroup of the over 45s and is focusing on, at most, cautious modernisation geared to attracting newcustomers who are entering the over 45 age group, without losing regular customers. In this spirit,Adler has already begun fitting out all its stores with wider aisles, larger fitting rooms, rest areasand alteration services, to better conform to the trend towards convenience shopping and evenbetter meet the needs of older customers. The marketing strategy continues to focus onaddressing its target customer groups in the appropriate manner, through mailings and flyers. Adlerhas been generating customer frequency in its stores through mailings and flyers for more than 20years, and plans to further optimise usage of these based on the over 15 million usable addressesin its customer database. In order to reactivate older regular customers, in the second half of 2009,Adler began focusing more on the use of bus trips to its stores again, accompanied by anappropriate programme of supporting events. Adler also intends to continue the collaboration withtestimonials by spokespersons Birgit Schrowange and Reiner Calmund as figures of integration forAdler’s relevant target groups. In addition, Adler is aiming to attract new customers who will enterthe over 45 age group in future. It has already laid the foundations for this with its increasedoffering of selected external brands, such as s.Oliver, Tom Tailor, Street One, Cecil andOneTouch, and the launch of its online shop, and has increased the number of new customers ithas attracted by almost 40%, from around 250,000 in 2009 to around 350,000 in 2010. In the firstquarter of 2011, it has already attracted an additional 71,000 new customers. In 2011, Adlerintends to pick up on the social trend across all age groups towards a greater interest in sport andfitness. To this end, Adler has been offering since the first quarter of 2011 a wider range ofsportswear and functional clothing, as well as a ski collection, under its new own brand, ‘‘Eibsee’’.It has engaged former alpine ski racers Rosi Mittermaier and Christian Neureuther as advertisingpartners, who embody perfectly the trend towards more sport and fitness activities across all agegroups.

Increasing the attractiveness of the stores to win new customers. Adler intends, through morestringent visual merchandising, modernisation of its shop fronts and interior design of its stores, aswell as the offering of selected external brands, to further increase the attractiveness and sales ofits stores. In 2009, Adler set up its own Visual Merchandising department, which devises systemicstandards for the Adler stores. The dominant parameters of these standards are practicality,functionality, cost efficiency, brightness, cleanliness, clarity of arrangement and clear customerguidance. Nevertheless, Adler consciously does without a resource- and cost-intensive design withlifestyle elements in its stores, since the target group addressed by Adler does not desire suchlayouts. The implementation of the uniform visual merchandising standards is to be furtherimproved by the increased use of the Tex-Store software already tested at competitors. In financialyear 2010, Adler also modernised the shop fronts and interior design of some of its stores, whichinvolved putting up the new logo, a discrete reorganisation of the interior and a re-design of theentrance and shop front. Adler plans to continuously expand this concept to further stores. In thisrespect, Adler will adhere to its proprietary space concept with wide aisles and spacious fittingrooms. Adler anticipates an increase in sales and sales density per store as a result of themodernisation efforts. Adler also intends to expand its range of selected external brands. Over thepast few years, Adler has integrated external brands such as ‘‘Steilmann’’, ‘‘Gin Tonic’’, ‘‘Wrangler’’,‘‘Paddock’s’’, ‘‘Pioneer’’, ‘‘Triumph’’ and ‘‘Schiesser’’ into a number of its stores. These externalbrands are presented within concession concepts. In 2010, Adler significantly expanded this rangeof external brands and set up ‘‘shop-in-shops’’ within a number of its stores, in which it sellsproducts from well-known brand manufacturers like ‘‘s.Oliver’’, ‘‘Tom Tailor’’, ‘‘Street One’’, ‘‘Cecil’’and ‘‘OneTouch’’. These ‘‘shop-in-shops’’ are made to stand out both spatially and visually, and are

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fitted out with original furnishings of the respective brand manufacturer. The aim is for Adler storesto attract in particular new customers entering the over 45 age group, who will thus be introducedto Adler as a place to shop. In the stores in which Adler has already implemented its ‘‘shop-in-shop’’ concept, the number of new customers has increased disproportionately compared withstores with no external brands, and the average age of the customers has also decreased. Adlertherefore plans to expand its ‘‘shop-in-shop’’ concept beginning in the second half of the 2011financial year to numerous additional stores, and has also won the Mexx brand for this.

Ongoing expansion of the store network in core markets. The Company plans to continuouslyfurther expand its existing store network in the core markets of Germany and Austria, in order toexpand its market position and exploit economies of scale in purchasing, sales and marketing.Among other things, this includes improving the efficiency of TV and radio advertising. Inexpanding its store network in Germany, Adler will primarily concentrate on towns and the outskirtsof cities with a catchment area of more than 50,000 inhabitants. At the moment, Adler ispredominantly assessing future locations for large-space concepts, i.e., stores with more than1,000 m2 of sales floor in retail parks, shopping centres and city centre locations. Retail parks areparticularly suitable as locations for Adler stores, firstly because they offer a high basic frequencythat Adler stores can participate in, and, secondly, because general conditions outside the stores,e.g. adequate parking facilities and accessibility, meet the needs of Adler customers. Shoppingcentre locations are interesting for Adler if the needs of the over 45s are not yet being adequatelymet there and lease prices are reasonable. As some large department store chains, such as Hertieand Karstadt, as well as a number of small retailers, have withdrawn from the market or arecontinuing to withdraw to some extent, Adler also sees good opportunities for opening stores in citycentre locations. Due to its modular system, Adler is able to adequately stock retail spaces sizedbetween 700 m2 and 4,000 m2 with a both extensive and broad product range, and can thereforeflexibly exploit any opportunities that arise within the scope of its planned expansion. It has alreadydone this successfully In Austria, where Adler expanded its store network in 2010 by acquiringformer Woolworth stores. By standardising processes and retail space concepts, creating capacitiesin the Construction department and in lower management, Adler has laid the foundations for rapidexpansion. As part of its organic growth, Adler aims to open 20-35 new stores each year between2011-2013 in Germany and Austria depending on the market situation and the market environment.In the long term, Adler sees potential in Germany to triple the number of its stores.

International expansion and acquisition of competitors. In the medium term, Adler also plansto expand into other European markets. Adler’s focus here will presumably be on the regionsbordering on those markets already covered. Initial market analyses are to be carried out inseveral European countries, in particular in Switzerland from 2011, to determine whether Adler willbe able to successfully hold its own in the respective market with its business model. If the resultsof these tests are positive, Adler shall look into initial market entries from 2012 or 2013. Adler’sinternational expansion will be guided by the extent of similarity between the population of thesemarkets with customers in Germany in terms of age structure and physiognomy and their demandswith regard to fit and fashion grade. The international expansion is to focus primarily on borderregions, where the population already frequents Adler’s stores to some extent. The clothing marketis characterised by increasing consolidation. In addition to growing organically, Adler intends, whereopportunities present themselves, to exhaust growth potential in Germany, but also in otherEuropean countries, through acquisitions of companies with insufficient capital, and thus strengthenits own market position. Adler assumes that by making acquisitions and implementing the Adlerconcept it will be able to achieve a sustainable increase in its overall profitability.

Increase in the use of innovative technologies. Adler plans to achieve both cost benefits andsales growth by employing innovative technologies. Through the increased use of the Tex-Storesoftware from 2011, Adler hopes to achieve even greater vertical integration and interactionbetween, in particular, purchasing and visual merchandising in the stores. This programme enablesthe development of concepts for presenting goods, even before product procurement. The RFID(radio-frequency identification) system is already being used in the sale of textiles by well knowncompanies in the United States, and is currently being tested by Adler. If this trial is successful,Adler plans to launch RFID across all stores from spring/summer 2012. RFID requires smallmicrochips – known as tags – to be sewn into the products at Adler’s suppliers. These tags can beread using scanners and could therefore potentially increase efficiency and optimise processes inlogistics, loss prevention, stock-taking and purchasing. Adler also expects RFID to bring increasesin sales, as the technology will speed up assortment management, especially the re-ordering of

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items that are selling well. Adler expects the comprehensive use of a merchandise planning systemthat it is currently testing to result in more efficient monitoring of merchandise flows and, thus, costbenefits. An optimisation of the online shop launched in 2010 is expected to contribute to furtherincreases in sales.

Increase in sales through multi-channel distribution strategy. Adler pursues a multi-channeldistribution strategy. In terms of its most important distribution channel, its stores, it focuses onlarge-space retail concepts. These are distinctive in that they act as a customer magnet, in otherwords, they generate customer frequency themselves. Small-space concepts, on the other hand,merely skim off the customer frequency in their surrounding area, and are therefore typicallydependent on expensive prime locations. Operators of large-space retail concepts like Adler,however, tend to be able to obtain lower lease prices per square metre, since, on the one hand,they are able to generate good sales even in secondary retail locations, and on the other hand,due to their effect as a customer magnet and lessee of large retail spaces, they are also generallyin a better negotiating position vis-a-vis operators of retail parks or shopping centres. In 2010,Adler launched another distribution channel, in addition to its stores – the Adler online shop. Adlerexpects the online shop to exude Adler’s positive image and, in turn, for customers who havebecome aware of Adler online to frequent Adler’s stores more often. Adler also benefits from sideeffects of the online business. Based on the localisation of online customers, inferences can bemade with regard to the potential for additional Adler stores in certain regions, and customeraddresses can be collected for use in mailings and other marketing campaigns. Over the next fewyears, the online shop is to be expanded and its user-friendliness optimised, particularly withregard to the needs of older people. One key instrument that supports sales is the Adler customercard, which was used by around 3.3 million customers in financial year 2010, and which Finanztestmagazine rated as ‘‘almost ideal’’. In the medium term, Adler is considering selling its productsthrough TV shops, since ordering via this sales channel is just as convenient as ordering throughAdler’s online shop, but requires less technical ability on the part of the customer and thereforeseems particularly suitable for Adler’s older customers. The first formats are currently being tested.

Increase in sales through multi-format marketing strategy. Adler operates its stores as large-space retail concepts and therefore follows an intensive multi-format marketing strategy that aimsto enhance the effect of the stores as a customer magnet. In order to strengthen the marketingmeasures at the point of sale, i.e., in its stores, Adler set up its own Visual Merchandisingdepartment in 2009, which devises systemic standards for the Adler stores. The dominantparameters of these systemic standards are practicality, functionality, cost efficiency, brightness,cleanliness, clarity of arrangement and clear customer guidance. Other key marketing measurestraditionally include mailings, supplements and flyers, which are primarily geared to Adler’s corecustomer base and which, based on the data generated from the online shop and Adler customercard, are specifically geared to the respective target groups and continuously optimised. Adler alsofocuses on placing target group-specific and thus efficient advertising in the form of mailings, forexample by addressing buyers of the ‘‘Big Fashion’’ own brand with advertising for precisely thisown brand. Adler also runs brand and product advertising in the form of TV and radioadvertisements, which have to date been based on, among other things, testimonials byspokespersons Birgit Schrowange and Reiner Calmund, but will in future also be tailored to thenew advertising partners, Rosi Mittermaier and Christian Neureuther. Since launching its onlineshop, Adler has also reinforced its online marketing: for example, Internet users can now viewnumerous adverts on Adler’s website. In addition, Adler is considering setting up a TV shop in themedium term, via which its products would be simultaneously sold and advertised.

Economic, social and ecological sustainability. Adler has positioned itself in such a waystrategically that the measures it takes contribute to the long-term success of the Company andpermanently ensure that the interests of all stakeholders are not compromised. For instance,Adler’s assortment policy focuses on long durability and quality, which not only satisfies the needsof Adler’s customers, but also reduces the need for raw materials, thus benefiting the environment.Another way in which Adler contributes to the conservation of natural resources is through itsparticipation in the ‘‘I:CO’’ project, as part of which used clothes and shoes are collected andreused or recycled. Adler ensures the motivation, competence and customer orientation of itsemployees by means of a wage and personnel policy that is based on a co-determinedSupervisory Board, a company internal wage agreement with trade union ver.di, and the co-operation with Adler’s works councils. By selling products certified as Fair Trade products andcontractually agreeing to safeguarding social standards as far as possible in relation to its

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suppliers, Adler makes it clear that it also attaches importance to compliance with humanestandards in the production of the products it sells. Adler therefore preserves its positive brandimage long term, which could otherwise be damaged by negative reporting. Adler intends tocontinue its involvement in activities outside of its area of business and, in the interest of building astable society in the long term, support in particular children’s and youth projects.

Products

Overview

Based on its own assessments, Adler is the market leader among textile retailers in the value pricesegment for customers over 45 in Germany. Adler is currently focussing on large-space retailconcepts, i.e., the space occupied by its stores is usually more than 1,000 m2. Due to the size ofits stores, Adler is able to offer a both broad and extensive range of womenswear, menswear andlingerie. With a supplementary range consisting of accessories, footwear, kidswear and babywear,traditional dress, sportswear and hardware products, Adler aims to round off its product portfolioand to exploit existing cross-selling potential in its stores. Due to the breadth of its product range,Adler is able to offer its customers a one-stop-shopping experience, i.e., customers can satisfy anumber of complementary needs in the stores.

Adler’s product range is primarily tailored to the needs of customers over 45, whose share in theoverall population will continue to grow in future. Adler’s target group values attributes such as fit,functionality and quality with perceptibly longer durability, all at an attractive price. Adler thereforepays particular attention to ensuring that its products offer an attractive price-performance ratio andfits that suit the changed body proportions of the over 45s. It also offers a large section of itscollections in plus sizes. The fashion grade of the assortment marketed by Adler is tailored to theneeds of the customer group it targets, whose members do not usually follow fashion trends untilafter these have already perceptibly established themselves on the street and in the media.

Adler pursues a multi-brand strategy, addressing a number of different groups within its targetcustomer group of the over 45s. With its own brands ‘‘Malva’’ (women) and ‘‘Senator’’ (men), forexample, it serves a core customer base of older, conservative customers, which has grown over anumber of decades. However, it also caters for the trend among the over 45s towards fashionable,sporty clothing with its additional own brands that have a modern classic fashion grade. In addition,since 2009, Adler has increasingly been offering well-known external brands in certain stores, suchas s.Oliver, Tom Tailor, Street One, Cecil, OneTouch and Mexx, to thus expand its offering andwin new customers who are just entering the over 45 age group and are thereby being introducedto Adler as a place to shop.

In financial year 2010, Adler generated around 49% of its gross revenue from womenswear, 28%of its gross revenue from menswear, 10% of its gross revenue from lingerie and around 13% of itsgross revenue from its supplementary assortment. Around 96% of Adler’s total gross revenue wasgenerated from own brands and around 4% from external brands. The main womenswear ownbrands in financial year 2010 were ‘‘Bexleys Woman’’, which accounted for 54% of the grossrevenue generated with own brands in the Womenswear segment, followed by ‘‘Malva’’, with 26%,‘‘Thea 42 plus’’, with 9%, ‘‘MyOwn’’, with 7%, ‘‘Via Cortesa’’, with 3%. In the Menswear segment,‘‘Bexleys Man’’ was the most significant own brand in financial year 2010, accounting for 59% ofthe gross revenue generated with men’s own brands, followed by ‘‘Senator’’, with 13%, ‘‘Eagle No.7’’, with 12%, ‘‘Big Fashion’’, with 10%, and ‘‘Via Cortesa’’, with 6%. Revenue in the Lingeriesegment was generated with Adler’s ‘‘Bexleys’’ own brand and the external brands ‘‘Triumph’’,‘‘Schiesser’’, ‘‘Gotzburg’’ and ‘‘Pierre Cardin’’. The top-selling sub-segments of the supplementaryassortment in financial year 2010 were Accessories, with 29% of gross revenue, Footwear, with27%, Kidswear and Babywear, with 13%, Traditional Dress, with 9%, Sportswear, with 8%, andhardware products, with 5%. Adler generated additional revenue from the operations of restaurantsand alteration services, which it operates itself in some of its stores as a supplementary marketingmeasure. Adler’s principal areas of business presented here are those that operated during theentire period covered by the historical financial information.

Womenswear

Adler focuses on a both broad and extensive range of womenswear, offering, among other things,trousers, skirts, jumpers, blouses, shirts, tops, blazers and jackets. Adler therefore provides itsfemale customers with a one-stop-shopping experience that enables them to kit themselves outwith new clothes from head to toe. As part of its multi-brand strategy, Adler sells a number of

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different own brands and external brands in its stores that aim to cater for various customer groupswithin the principal target group of the customers over 45, but also younger female customers.

With the ‘‘Malva’’ brand, Adler is targeting more mature female customers. This brand’s style isvery classic. In addition, when developing the collections, priority is given to the parameters ofwearing comfort and functionality. The ‘‘Malva’’ brand is available up to size 54. As far as possible,easy-iron, washable and easy-care materials are used. With this brand, Adler meets theexpectations of a needs-based, more conservative core customer base that has been loyal to Adlerfor decades, and presents these brands in a traditional way in its core and coordinatesdepartments.

The target group of the ‘‘Bexleys Woman’’ brand is women over 45, who are frequent shoppers, aswell as quality-conscious, and looking for clothing in the size and fit they require. Adler presentsthis brand in its core and combination departments. The brand is designed as a modern classicbrand with fashionable and sporty elements. The use of high-quality materials is a main priority.

The ‘‘Thea 42 plus’’ own brand is geared to women over 35 sized between 42 and 56. The aim ofAdler’s ‘‘Thea 42 plus’’ brand is to offer clothes that are highly comfortable to wear, fit well and stillhave a high fashion grade at the same time. For the younger target group, who is not purelyneeds-orientated, the collections of the ‘‘Thea 42 plus’’ own brand are presented within ‘‘shop-in-shop’’ concepts. In terms of price, the products of the ‘‘Thea 42 plus’’ brand are in the mid-rangeof the own brands offered by Adler.

Adler’s own brands ‘‘Viventy by Bernd Berger’’, ‘‘Via Cortesa’’ and ‘‘MyOwn’’ are aimed at womenover 35 or 40. ‘‘Viventy by Bernd Berger’’ is designed as an independent designer collection withinthe Adler product range. The collections of the ‘‘Via Cortesa’’ own brand are in a modern, sportystyle, while those of the ‘‘MyOwn’’ brand are in a fashionable to trendy style. Due to these focuses,the brands ‘‘Viventy by Bernd Berger’’, ‘‘Via Cortesa’’ and ‘‘MyOwn’’ are each marketed as part of‘‘shop-in-shop’’ concepts within the stores. Since impulse buys play a greater role among the targetgroup of these three own brands, complete outfits are increasingly being presented in the stores.In terms of price, ‘‘MyOwn’’ is in the lower price range, ‘‘Via Cortesa’’ is in the mid-range and‘‘Viventy by Bernd Berger’’ is in the upper price range of the products offered by Adler.

In order to attract more and more new customers, Adler has increasingly been selling selectedexternal brands since 2009. These are presented within visually distinctive ‘‘shop-in-shops’’ fittedout with original furnishings of the manufacturer, with the aim of cautiously modernising the overallimage of Adler stores. The external brands sold by Adler in the Womenswear segment are‘‘Steilmann’’, ‘‘Gin Tonic’’, ‘‘Gin Fizz’’, ‘‘s.Oliver’’, ‘‘Tom Tailor’’, ‘‘cecil’’, ‘‘Street One’’, ‘‘OneTouch’’and, since 2011, ‘‘Mexx’’. In a continuously growing number of stores, Adler has, since financialyear 2009, increasingly been displaying the well-known external brands alongside the respectivecounterpart of its younger own brands, i.e., in particular ‘‘MyOwn’’ and ‘‘Via Cortesa’’, and has todate succeeded in the relevant stores in increasing both total sales and sales of own brands byfollowing this strategy.

Menswear

Adler’s Menswear segment also focuses on a both broad and extensive product range thatprovides its customers with a one-stop-shopping experience. Once again, Adler employs a multi-brand strategy for its male customers with the aim of addressing various customer groups within itsprincipal target group of men over 45, as well as younger customers, by offering various ownbrands and external brands.

Adler’s ‘‘Senator’’ brand is aimed at more mature customers from their late 50s. The style of theclothing under this brand is respectable and low-key. In addition, when developing the collections,priority is given to the parameters of wearing comfort and quality. The ‘‘Senator’’ brand is availableup to size 59. As far as possible, easy-iron, washable and easy-care materials are used. With thisbrand, Adler meets the expectations of a needs-orientated, more conservative core customer basethat has been loyal to Adler for decades, and presents these brands in a traditional way in its coreand combination departments.

The target group of the ‘‘Bexleys Man’’ brand is men over 45. Adler presents the ‘‘Bexleys Man’’brand in its core and coordinates departments. The brand is designed as a modern classic brand.The use of high-quality materials is a main priority.

The ‘‘Big Fashion’’ own brand is geared to customers over 40 wearing between size 60 and 70.Adler’s ‘‘Big Fashion’’ brand aims to offer fashionable clothing that is highly comfortable to wear.

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For the younger target group, who is not purely needs-orientated, the collections of the ‘‘BigFashion’’ own brand are presented within ‘‘shop-in-shop’’ concepts. In terms of price, the productsof the ‘‘Big Fashion’’ brand are in the upper mid-range of the own brands offered by Adler.

Under its ‘‘Via Cortesa’’ own brand, Adler also offers men a complete range of clothing that picksup on the trend towards smart, sporty clothing; this is also presented in Adler stores as part of a‘‘shop-in-shop’’ concept. ‘‘Via Cortesa’’ is aimed at customers in their late 30s and upwards. Adler’sMenswear segment also includes the long-established, strong jeans own brand, ‘‘Eagle No. 7’’,under which Adler now successfully markets not only jeans, but also other fashionable trousers,jackets, long-sleeved shirts, t-shirts, sweatshirts and knitwear. The ‘‘Eagle No. 7’’ own brand isaimed at men in their mid-30s and upwards, who value a higher fashion grade.

Adler presents these own brands within the scope of ‘‘shop-in-shop’’ concepts and combines themto a certain extent with selected external brands. Adler has been incorporating external brands intoits product range for men for a long time. The brands ‘‘Wrangler’’, ‘‘Paddock’s’’ and ‘‘Pioneer’’, forexample, have been offered alongside the own brand ‘‘Eagle No. 7’’ for a number of years now.Recently, Adler introduced the additional external brands ‘‘Gin Tonic’’, ‘‘Tom Tailor’’ and ‘‘CecilMen’’ into its menswear range. In this way, the Adler Group is also aiming to increase thefrequency in its stores of the customer groups relevant for the younger own brands ‘‘Via Cortesa’’and ‘‘Eagle No. 7’’, so that both the external brands and the own brands benefit.

Lingerie

The Adler Group has integrated lingerie departments, including swimwear, in all its stores. The sizeof the respective lingerie departments in the stores varies from location to location, in order tomake optimum use of the particular competitive situation locally. As with all its departments, Adlerhas organised the lingerie department into five different-sized modules, which it can integrate in thestores as it chooses. Where there are gaps in local supplies – such as those that have arisenrecently, for example, due to the withdrawal of large department store chains like Hertie andKarstadt, or the pullout of small retailers – Adler is therefore able to quickly exploit suchopportunities by expanding its lingerie department.

Adler has a both broad and extensive assortment of lingerie for every customer group within themarket segment of the over 45s. Drawing from the reputation of the strong own brands ‘‘Malva’’,‘‘Senator’’, ‘‘Big Fashion’’, ‘‘Bexleys Woman’’, ‘‘Bexleys Man’’ and ‘‘MyOwn’’, Adler places lingeriecollections of its own under these labels. In addition, Adler collaborates with external brandsuppliers and also offers lingerie from the ‘‘Triumph’’ and ‘‘Schiesser’’ brands, and, since 2010, hasbeen collaborating with ‘‘Gotzburg’’ and ‘‘Pierre Cardin’’.

Supplementary assortment

In order to round off the product range of its stores, on the one hand, and leverage cross-sellingpotential, on the other, Adler also markets a supplementary range of products, in addition towomenswear, menswear and lingerie. This supplementary assortment mainly includes accessories,footwear, kidswear and babywear, traditional dress, sportswear and hardware items.

The collective term ‘‘accessories’’ primarily includes handbags, scarves, belts and jewellery. Adlermainly offers accessories under the own brands of its Womenswear and Menswear segments. Inits jewellery segment, Adler also sells the external brands ‘‘Irina’’ and ‘‘beeline’’.

The Adler Group also sells footwear in many of its stores, the offering of which varies fromlocation to location, depending on the competitive situation locally. Adler has been co-operating inthis area for more than ten years with a company of the Hamm-Reno Group. This supplieroriginally leased spaces in some of the Adler Group’s stores, on which it sold footwear. Since July2010, however, Adler has been operating the footwear departments integrated in some of its storesitself, with its own staff or, in some cases, staff acquired from this supplier. Adler’s footwear rangeconsists entirely of external brands, such as ‘‘Bama’’, ‘‘Dockers’’, ‘‘Dr. Jurgens’’, ‘‘Mercedes’’,‘‘Rieker’’ and ‘‘Tamaris’’.

Adler maintains kidswear and babywear departments in many of its stores, selling both own brandsand external brands. In future, Adler’s Kidswear and Babywear segments will consist entirely ofexternal brands like Tom Tailor.

Adler has traditionally been well positioned in the market for traditional dress with its own brand,‘‘Alphorn’’. The range of traditional dress is styled to suit local tastes, however, i.e., it focuses

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mainly on Southern Germany. In addition, Adler varies its range of traditional dress seasonally,increasing it, for example, during the Munich Oktoberfest.

Under its own brand ‘‘fit & more’’, Adler currently sells predominantly tracksuits and leisure suits.Since the end of the first quarter of 2011, Adler also offers a wider range of sportswear andfunctional clothing, as well as an annual ski collection, under its new own brand, ‘‘Eibsee’’, toexploit growth opportunities in this area.

Under the collective name ‘‘hardware’’, Adler sells products that fall into the specific area ofinterest of its customers. Adler manages this range of hardware products in the short term basedon the respective margin and sales contribution of the relevant items. Hardware products include,for example, household goods, alarm clocks, popular fiction and calculators. Hardware products areprimarily sold under the own brand ‘‘Adler Club’’.

Competitors and competitive position

In the highly fragmented textile retail market, Adler focuses on the market segment of the over45s, and primarily offers fashion in the value price segment. In these markets, Adler considersitself to be in competition with a large number of, in particular, local textile retailers.

Other, nationwide suppliers of classic and modern fashion for women and men over 45, whichAdler regards as major competitors, are C&A, Charles Vogele, K&L Ruppert and AWG, in thevalue price segment, and Karstadt, Kaufhof and Gerry Weber in the upper mid-price range. Interms of its mail order business, Adler considers Otto Versand and Klingel to be its maincompetitors.

Contrary to most of its competitors, Adler distinguishes itself through its clear positioning in theclothing market. It is the only major supplier in the fashion industry that consistently focuses on thedemands and fashion needs of the over 45s. This focus is clearly distinguishable for customers,thus giving Adler a unique selling point in the clothing retail market that sets it apart from itscompetitors.

Trademarks, utility patents and domains, and licences to proprietary rights

Trademarks and trademark licenses

Trademark rights are of considerable importance for the Adler Group. The Adler Group ownsaround 80 German trademarks and around 70 international registrations, each of which aregenerally protected in several countries, particularly Austria, the Benelux countries, Poland andSwitzerland. The Adler Group also owns around 40 Community trade marks, which are protected inall member states of the European Union, as well as more than 50 national trademarks outside ofGermany, which are protected in particular in Austria, China, Poland and Turkey. The AdlerGroup’s most important brand family is the family of ‘‘Adler’’ brands. The Adler Group also owns alarge number of other brands, some of which hold substantial economic relevance for the AdlerGroup, such as, for example, the brand families ‘‘Malva’’, ‘‘Bexleys’’, ‘‘Thea 42 Plus’’, ‘‘ViaCortesa’’, ‘‘MyOwn’’, ‘‘Senator’’, ‘‘Big Fashion’’, ‘‘Eagle’’, ‘‘Alphorn’’ and ‘‘Eibsee’’. A large majority ofthese brands are protected not only as national trademarks in Germany, but also as Communitytrade marks throughout Europe, and as international registrations in a number of other countries.Adler Modemarkte AG is in some cases owner and in some cases merely the exclusive licenceholder of various brand names in the ‘‘Viventy by Bernd Berger’’ brand family.

Domains

The Adler Group owns more than 100 domains. These domains are predominantly registered as.de domains, .com domains, .eu domains, .at domains and .lu domains. Adler’s main domain isadlermode.com. Adler also uses a number of other domains, e.g. adler.de, adlermode.de, adler-modemaerkte.de, adlermode.at, adlerfashion.at, adler.lu, adlerfashion.com, adlerfashion.eu,adlermodemaerkte.eu, bexleys.com, bexleys.de, bexleys.eu, malva-adler.com, malva-adler.de,thea42plus.com, thea42plus.de, viacortesa.com, viacortesa.de and viacortesa.eu. These domainsredirect the Internet user to the main domain, adlermode.com.

Assortment planning, procurement, warehousing and logistics

When planning its assortment and developing its collections, Adler focuses primarily on thegeneration of customers over 45, in terms of fit, fashion grade, functionality and quality. In doingthis, the Adler Group considers that the customers Adler targets are predominantly fashion

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followers, in other words, they only react to fashion trends after these have perceptibly establishedthemselves on the street and in the media. The fashion risk, i.e., the risk of not recognisingemerging trends in good time, is therefore smaller for Adler, due to its target group, than forcompetitors, for whose customers keeping up with the latest fashion trends is particularly important.Accordingly, lead times, in other words, the time between the design of a collection and its deliveryto the customers, are also less important for Adler than for competitors whose customers desire aparticularly high fashion grade. Nevertheless, the Company has vertically integrated its entireplanning, development, procurement and distribution process, from the design of the products untilthey are marketed. This vertical integration means that Adler can respond more efficiently tochanges in demand. The aim is to ensure that the current, in-demand products are always on thesales floor in sufficient quantities and that an increase in sales density can therefore be achieved.

Assortment planning

Adler employs its own team of designers for its own brands, and has an independent departmentthat is responsible for technical product development. These two teams compile the collectionsmarketed under the own brands and therefore work closely together with the various responsiblecontrol purchasers. Adler takes care to ensure that each brand has its own distinctive image, iscoherent within itself and, at the same time, sets itself apart from the other own brands. Thecollections are developed jointly for Germany, Austria and Luxembourg, as the taste andpreferences of the customers in all three countries are largely the same.

Adler continuously performs market and customer analyses. In particular the vertical integration andAdler’s customer card permit a specific analysis of the needs of Adler’s customers. Adler istherefore able to recognise changes in its industry environment in good time and can proactivelyand quickly adapt its product assortment to the changed requirements of its customers. Due to itsproduction cycles, new collections are already being designed during the procurement phase.

Procurement

Adler undertakes the procurement of its products to a significant extent via Metro Group BuyingLtd., Hong Kong (‘‘MGB’’). MGB bundles the procurement activities of the METRO Group in Asiaand accordingly has a great deal of market power there, from which Adler also benefits. At thesame time, Adler is one of MGB’s biggest customers for textiles. In financial year 2010, Adlerprocured around 40% of its purchasing volume through MGB. Significantly more than 90% of thisvolume was produced in East Asia, Southeast Asia and on the Indian subcontinent, predominantlyin low-wage countries, and delivered to Europe by sea freight.

Adler has also concluded a large number of contracts with importers, each of which accounted forless than 5% of the total volume delivered to Adler in financial year 2010. Some importers ensurequick responses to changes in demand, since their production facilities are close to Europe. Someof the contracts with importers pertain to never-out-of-stock items (‘‘NOS items’’), which areautomatically replenished when they sell out. The suppliers of NOS items stock a portion of theproducts in their own warehouse for short-term call-off by Adler. Adler maintains additional supplierrelationships with the manufacturers of the external brands it offers in its stores.

Warehousing and logistics

The logistics requirements in the textiles trade are high, which is attributable, on the one hand, tothe faster and faster seasonal turnarounds in the past few years and to a growing change inconsumer behaviour, on the other. Adler therefore has an integrated and efficient materialmanagement system, which, together with Adler’s other IT systems, records, plans and controls allgoods flows from the source to the point of sale.

Adler’s logistics services are primarily rendered by MOTEX Mode-Textil-Service Logistik undManagement GmbH (‘‘MOTEX’’). This company assumes responsibility, among other things, forgoods receiving, order picking, reprocessing and pricing, as well as the completion of semi-finishedproducts. MOTEX, a former subsidiary, was sold to investment company bluO with effect from1 October 2010 (for more details see ‘‘Related Party Transactions’’). The aim of this measure is tofocus on the core business of sales and increase flexibility in logistics. Adler continues to beMOTEX’s main customer.

The goods purchased via MGB are shipped centrally to MOTEX’s textiles logistics centre inHorselgau, near Gotha, which, in the Company’s opinion, is one of the most cutting-edge goodsdistribution centres in Europe. The logistics centre has a state-of-the-art overhead conveyor

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system, specialist software and logistics technologies, and has capacity for up to 100 million itemsper year. In addition to the quality controls to be carried out on site at the manufacturer by MGB,as per a service level agreement, additional quality spot checks of the products and packaging arecarried out after the delivery is received at the logistics centre. Some of the goods Adler purchasesdirectly from importers are also delivered centrally to the Horselgau logistics centre. A smallnumber of the importers and the majority of the manufacturers of the external brands offered inAdler stores, on the other hand, deliver their goods directly to the Adler stores.

MOTEX also transports the goods to the individual Adler stores. At this point, a portion of thedelivered goods is transferred directly from the logistics centre to the individual Adler stores (pushstrategy). The remaining goods are stored temporarily for delivery at a later date. The Adler storesreceive supplies from this replenishment warehouse within a few days, as necessary, based ontheir sales figures (pull strategy). This concept of a combined push and pull strategy enablesefficient logistics planning and control.

Adler is currently in the testing stage for the Group-wide introduction of the electronic goodstracking and tagging system RFID (radio-frequency identification). This system is already beingused in the sale of textiles by well known companies in the United States, and is currently beingtested by Adler. If this trial is successful, Adler plans to launch RFID across all stores from spring/summer 2012. RFID requires small microchips to be sewn into the products at Adler’s suppliers.These microchips can be read using scanners and could therefore have the potential to increaseefficiency and optimise processes in logistics, loss prevention, stock-taking and purchasing. Adleralso expects RFID to bring increases in sales, as the technology will speed up assortmentmanagement, especially the re-ordering of items that are selling well.

Sales

Adler pursues a multi-channel sales strategy with its two distribution channels – its stores and itsonline shop – and is considering expanding this strategy to selling its products via TV shops. TheAdler Group operates the majority of its currently 139 stores as large-space retail concepts. Theseare distinctive in that they act as a customer magnet, in other words, they generate customerfrequency themselves, whereas small-space retail concepts merely skim off the customer frequencyin their surrounding area.

In financial year 2010, Adler updated the shop front and interior presentation of some of its stores.This included putting up the new logo launched in 2009, a discreet re-organisation of the interiorand a re-design of the entrance and shop front. Adler plans to continuously expand this concept tofurther stores. In this respect, Adler will adhere to its proprietary space concept with wide aisles,an adequate number of large fitting rooms and rest areas. Adler anticipates an increase in salesand sales density as a result of the modernisation efforts. In 2009, Adler reactivated organised bustrips as a measure to increase customer frequency in its stores. In collaboration with busoperators, Adler customers are offered trips to selected stores, which are combined with fashionshows and, often, excursion programmes or concerts. Adler is particularly targeting its older regularcustomer base with these bus trips.

A key instrument for promoting sales is Adler’s customer card. Adler issued its first customer cardsback in 1974 and gathered appropriate experience using this marketing tool. In financial year 2010,around 3.3 million customers used the Adler customer card and shopped at least once in one ofAdler’s stores. Overall, Adler generated around 90% of its revenue with the Adler customer card infinancial year 2010. According to a study conducted by the magazine ‘‘Finanztest’’ from August2010, Adler’s customer card is ‘‘almost ideal’’ in comparison with 24 well-known card programmes(source: Consumer Reports (Stiftung Warentest), Finanztest, 8/2010, p. 12). Assessment criteria forthis review were the regular financial benefit associated with the customer card, including outsideof special promotional offers, the general terms and conditions for collecting discounts and the wayin which the companies handle customers’ personal data. As an incentive to use the customercard, Adler uses discount credit notes, loyalty discounts, low prices for the alteration service, aswell as competitions, gifts, free rewards, extended exchange rights and other benefits. Adlerbenefits from the multiple use of its customer card, because this enables it to analyse moreprecisely the shopping behaviour of its customers. Using this information, Adler can place targetgroup-specific and thus efficient advertising in the form of mailings, for example by addressingbuyers of the own brand ‘‘Big Fashion’’ with advertising for precisely this own brand.

Adler has recognised that the generation entering the over 45 age group is significantly moretechnophilic and enjoys a more modern lifestyle. In 2010, therefore, Adler launched another sales

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channel, its online shop, via which it generated sales of more than c1.3 million in 2010. Over thenext few years, the online shop is to be expanded and its user-friendliness optimised, particularlywith regard to the needs of older people. Adler expects its online offering to have a multi-channeleffect, i.e., it anticipates that the online shop will benefit from business in the stores, and that theonline business will have positive effects on customer frequency in the stores. This assumption isbased, on the one hand, on the thinking that customers whose interest was aroused through theonline shop will come to the stores to try on and purchase clothes. The online shop, in turn, willbenefit from the stores, since these make the offering seem more reliable for Internet customersthan that of an anonymous online shop. Adler also benefits from side effects of the onlinebusiness. Based on the localisation of online customers, inferences can be made with regard tothe potential for additional Adler stores in certain regions, and customer addresses can becollected for use in mailings and other marketing campaigns.

In the medium term, Adler is considering selling its products through TV shops, since ordering viathis sales channel is just as convenient as ordering through Adler’s online shop, but requires lesstechnical ability on the part of the customer and therefore seems particularly suitable for Adler’solder customers. The first formats are currently being tested.

Marketing

Adler pursues a multi-format marketing strategy and uses a number of different media to promoteits image and products. As an operator of large-space retail concepts, Adler’s focus is to generatecustomer frequency in its stores through the intensive use of marketing measures.

In order to optimise its marketing at the point of sale, i.e., in its stores, Adler set up its own VisualMerchandising department in 2009, which has devised systemic standards for Adler’s stores. Thedominant parameters of these systemic standards are practicality, functionality, cost efficiency,brightness, cleanliness, clarity of arrangement and clear customer guidance, with the aim ofhighlighting Adler’s image as a value-for-money supplier. In 2011, Adler plans to increase its use ofthe Tex-Store software, which enables closer integration of design, purchasing and visualmerchandising, and which should therefore bring an improvement in visual merchandising as amarketing tool in the stores.

To increase customer frequency in the stores, Adler continues to rely on traditional marketingmeasures, such as mailings, supplements and flyers, which are primarily aimed at Adler’s regularcustomer base. The use and efficiency of mailings, supplements and flyers is reviewed on anongoing basis and optimised based on customer responses. Adler has a broad database to help itwith this, which was generated in particular through the Adler customer card, with which Adlergenerated around 90% of its revenue in financial year 2010, and the online shop. Based on thisinformation on the shopping behaviour of its customers, Adler places target group-specific and thusefficient advertising, for example by addressing buyers of the ‘‘Big Fashion’’ own brand withadvertising for precisely this own brand. In financial year 2010, Adler issued numerous mailingswith a total circulation of approximately 45 million and printed flyers with a total circulation ofapproximately 200 million.

Adler also airs TV and radio advertisements during programmes that are popular among the over45 customer group. Adler’s TV and radio advertising is both product and event-driven, or for imagepromotion. Many of Adler’s advertising spots can also be viewed online by Internet users, onAdler’s website. Since setting up its online shop, Adler has also intensified its online marketingactivities. In addition, Adler is involved in initiatives that, although they serve to improve Adler’simage, are primarily an expression of Adler’s sustainable corporate strategy. These initiativesinclude the sale of products certified as Fair Trade products, supporting the charity campaign ‘‘Fitam Ball’’ (‘‘Fit on the ball’’ campaign to promote physical education in schools), and the usedclothing recycling initiative ‘‘I:CO’’.

Adler’s marketing activities rely heavily on the prominence of its advertising partners andspokespeople. In March 2010, well known TV presenter Birgit Schrowange returned as a cross-brand advertising spokesperson for Adler, having previously acted as an advertising spokespersonfor Adler until the end of 2008. Schrowange enjoys a great deal of affection among Adler’scustomers and contributes significantly to the level of awareness and recognisability of Adler’sbrands. For Adler’s target customer group, she represents a credible and authentic figure withwhom they can identify. Adler uses Schrowange as an advertising spokesperson both in TVadvertisements and in mailings, supplements, flyers and in its merchandising. Since March 2010,Reiner Calmund, former general manager of the football club Bayer 04 Leverkusen, has been

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acting as advertising spokesperson for the ‘‘Big Fashion’’ own brand. Calmund’s strong mediapresence, particularly his many TV appearances, mean he is recognised by a large section ofAdler’s target customer base. Due to his physique, Calmund is an authentic advertisingspokesperson for the ‘‘Big Fashion’’ plus size collection. Adler has also engaged former alpine skiracers Rosi Mittermaier and Christian Neureuther as additional, credible advertising partners, withwhom Adler customers can identify. They are primarily expected to represent the trend towardsmore sport and fitness activities across all age groups and help establish the new sports ownbrand, ‘‘Eibsee’’. Adler also expects the collaboration with Rosi Mittermaier and ChristianNeureuther to give the Adler brand a sportier image overall.

Property holdings, operating facilities, property, plant and equipment

Property holdings and operating facilities

Adler has leased two administration buildings at its headquarters in Haibach, near Aschaffenburg,and also has an option from the owner to acquire one of the properties. The stores Adler operatesare leased. At some locations, it has sub-leased or rented out all or part of the spaces it hasleased. With the exception of one property in St. Polten, Austria, Adler does not own anyproperties at the present time.

The table below shows significant property holdings owned or leased by the Adler Group as of thedate of this Offering Memorandum:

Location DescriptionLeased/owned Area

Industriestraße Ost 1-5, Haibach(Bavaria, Germany)

Administration/retail space Leased appr. 22,000 m2

Industriestraße Ost 7, Haibach(Bavaria, Germany) Administration Leased appr. 5,800 m2

Mariazeller Straße 254, St. Polten(Lower Austria, Austria) Retail space Owned appr. 13,000 m2

Significant property, plant and equipment

Adler’s property, plant and equipment mainly consists of operating and office equipment, leaseholdimprovements and buildings leased by Adler, which for accounting purposes are attributed to Adleras the beneficial owner due to the structure of the underlying lease agreements. These buildingsare predominantly used to operate Adler’s stores. Adler operated 137 stores as at 31 March 2011and operates 139 stores as of the date of this Offering Memorandum. The remaining items ofproperty, plant and equipment consist mainly of the fixtures and fittings of the Adler stores. Thevalue of property, plant and equipment fell from c80,741 thousand as at 31 December 2008 toc63,760 thousand as at 31 December 2009, and then to c52,215 thousand as at 31 December2010. The value of property, plant and equipment was c50,708 thousand as of 31 March 2011.There have been no material changes to Adler’s property, plant and equipment as of the date ofthis Offering Memorandum.

The property, plant and equipment is predominantly located in Germany and, to a much smallerextent, in Austria and Luxembourg, and was financed from cash flows from operating activities andcash flows from financing activities. For information on current and future investments in property,plant and equipment, see the section entitled ‘‘Business – Investment’’.

Material agreements

Outlined below are all material agreements concluded outside the ordinary course of business inthe two years prior to the date of this Offering Memorandum to which either the Company oranother member of the Adler Group is a party, as well as all other agreements in force as of thedate of this Offering Memorandum that were concluded outside the ordinary course of businessand which contain a term conferring a right or obligation on a member of the Adler Group, suchright or obligation being of material importance to the Adler Group:

Purchasing commission agency agreement with MGB Metro Group Buying Ltd.

Adler has engaged MGB Metro Group Buying Ltd., Hong Kong (‘‘MGB’’) to act as its purchasingcommission agent. MGB concludes purchase agreements with suppliers worldwide in its ownname, but for the account and at the risk of Adler, and renders additional services in this context,

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in particular logistics services in Asia for Adler. MGB works exclusively for Adler in the territoriescovered by the agreement, which does not include 30 European countries or (as regardsexclusivity) Turkey. This agreement was concluded for a minimum term until 31 December 2013,and may be terminated thereafter with notice of twelve months to the end of the year.

Textile and transport logistics agreement with MOTEX Mode-Textil-Service Logistik undManagement GmbH

MOTEX Mode-Textil-Service Logistik und Management GmbH (‘‘MOTEX’’) is responsible for Adler’sgoods and transport logistics. This includes, among other things, goods receiving, inventorymanagement, order picking, preparation for dispatch, supplying all stores in Germany, Luxembourgand Austria from MOTEX’s logistics centre, transporting returns from the stores to MOTEX’slogistics centre, and cartage between the stores. Adler and MOTEX renewed the masteragreements pertaining to textiles and transport logistics for Germany, Austria and Luxembourg on15 December 2010 and on 10 March 2011. These agreements have a minimum term until31 December 2013; thereafter, they may be terminated with notice of twelve months to the end ofthe respective year.

Loans extended by Adler to Adler Treasury GmbH

The Company entered into a master agreement with Adler Treasury GmbH on 9 March 2009governing the reciprocal granting of loans. In 2009 and 2010, the Company extended three loanstotalling approximately c40,000 thousand to Adler Treasury GmbH under this master agreement.The Company and Adler Treasury GmbH also entered into a further loan agreement in November2010 concerning the Company’s grant of a loan of c7,300 thousand to Adler Treasury GmbH.Effective 31 December 2010, the Company assigned its claims for the repayment of principal andinterest under the aforementioned loans to AMODA GmbH as part of the arrangement to offsetAMODA GmbH’s claims against the Company (for further details see ‘‘Related Party Transactions– Financial dealings with AMODA GmbH and Adler Treasury GmbH’’).

Insurance

Adler has comprehensive insurance protection for its buildings, production facilities and inventories.Adler has taken out employer’s liability and product liability insurance, as well as environmentalliability insurance. It also has group accident insurance for certain employees. All goods shipmentsare insured. Adler also has D&O insurance to cover financial losses due to negligent breaches ofduty on the part of members of the Adler Group’s corporate bodies as well as IPO insurance tocover potential prospectus liability risks. The insurance protection is regularly restricted by risk-dependent or legally prescribed maximum limits of cover.

Adler reviews its insurance coverage on a regular basis and adjusts it, if necessary. The Companyis nevertheless unable to rule out the possibility of the Adler Group or the companies of the AdlerGroup incurring damages for which no insurance protection, or no sufficient coverage, exists,based on existing insurance contracts. Furthermore, there is no guarantee that Adler or itssubsidiaries will be able to obtain sufficient insurance cover at appropriate premiums in future.

Investments

In the 2008 financial year, Adler made investments of c11,831 thousand, of which c1,409 thousandwas invested in intangible assets and c10,422 thousand was invested in property, plant andequipment. Investments in intangible assets included an investment of c727 thousand for software,rights and licences, c360 thousand for internally generated intangible assets, and c322 thousandfor payments on account of intangible assets. Investments in property, plant and equipmentincluded c2,325 thousand for fixtures and fittings in buildings, c122 thousand for technical plantand equipment, and c7,975 thousand for other operating and office equipment.

In the 2009 financial year, Adler made investments of c3,750 thousand, of which c1,074 thousandwas invested in intangible assets and c2,676 thousand was invested in property, plant andequipment. All investments in intangible assets were for software, rights and licences. Investmentsin property, plant and equipment included c953 thousand for fixtures and fittings in buildings,c171 thousand for technical plant and equipment, c1,513 thousand for other operating and officeequipment, and c39 thousand for payments on account of property, plant and equipment.

In the 2010 financial year, Adler made investments of c4,418 thousand, of which c420 thousandwas invested in intangible assets and c3,998 thousand was invested in property, plant and

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equipment. All investments in intangible assets were for software, rights and licences. Investmentsin property, plant and equipment included c1,687 thousand for fixtures and fittings in buildings,c2,238 thousand for other operating and office equipment, and c73 thousand for payments onaccount of property, plant and equipment.

All investments in all three financial years were primarily made in Germany and, to a much smallerextent, in Austria and Luxembourg, and they were predominantly financed from cash flows fromoperating activities.

In the current financial year, Adler has invested c4,257 thousand up to the date of this OfferingMemorandum, particularly for the purpose of opening new stores, the procurement of replacementsand upgrade measures, particularly in Germany. The Company’s Executive Board has alsoapproved additional investments totalling up to c18,649 thousand for the remainder of the 2011financial year, contingent in part on the successful implementation of the IPO. Some of theseinvestments are also to be financed from cash flows from operating activities, and otherwise fromcash flows from financing activities. There are no other current investments.

Sustainability and the environment

As a long-term-oriented company, Adler attaches importance to ensuring that the products it sellsare manufactured in compliance with social and ecological standards. Adler therefore consciouslymarkets products that have been certified as Fair Trade products, both in its stores and via itsonline shop. In addition, Adler has obligated its principal supplier, MGB Metro Group Buying HKLimited, to comply with social standards, and in particular to observe the standards of the BusinessSocial Compliance Initiative (‘‘BSCI’’), of which it is also a member. Adler obtains contractualassurance from a majority of its other individual suppliers stating that the textiles they supplyconform to the ‘‘Oeko-Tex-100’’ standard and that they were not manufactured using any type oflabour that is exploitative, harmful to health, akin to slavery or otherwise against human dignity,such as child labour, forced labour or bonded labour.

The Adler Group is committed, as a long-term-oriented company, to its social responsibility. Itsupports the ‘‘I:CO’’ project of the Swiss I:Collect AG, as part of which Adler customers can donateused clothing and footwear at any of Adler’s stores. I:Collect AG then reprocesses these itemsprofessionally or recycles items that can still be worn as second-hand clothing. Participatingcustomers receive discount vouchers from Adler for each bag of unwanted clothing donated, whichthey can redeem when shopping in an Adler store. Adler also engages in charitable projects,particularly children’s projects.

The Company is not aware of any soil pollution on any of the properties used by Adler. Adler hassublet two service stations on properties it leases, but does not itself maintain any operatingfacilities with plant that, in the Company’s opinion, present a significant risk of environmentalpollution.

Litigation

With the exception of the proceedings presented below, Adler is not and was not the subject ofany government interventions, nor is it or was it involved in any judicial or arbitration proceedingsthat are ongoing or that existed or were concluded in the past twelve months, or that are pending,to the Company’s knowledge, and that could have or have recently had a material adverse effecton the financial condition or results of operations or the profitability of Adler:

* Claim for outstanding fees by former advertising partner

A former advertising partner has sued Adler for payment of a fee of around c450,000. Theclaim was preceded by disputes concerning the termination of an advertising contract and thefee owed to the former advertising partner. The proceedings concluded with a courtsettlement resolved on 17 March 2010, which provides for Adler to pay an amount ofc400,000 to the former advertising partner.

* Claim for the return of a fee against communications agency

Adler is currently suing a communications agency that it commissioned, as well as themanaging director of this agency. In Adler’s opinion, the communications agency chargedAdler excessive fees of around c535,000 by submitting falsified documents. In the firstinstance, the relevant claim asserted by Adler for repayment of the excessive fees paid to thecommunications agency was allowed to the full extent, while an identical claim against the

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managing director of the communications agency was only partly allowed. All parties havelodged an appeal against the first instance verdict. The appellate proceedings before theHigher Regional Court (Oberlandesgericht) in Cologne are still ongoing.

* Claim for damages against brand research agency

Adler has sued a brand research agency for damages of almost c600,000. In Adler’s opinion,the brand research agency did not adequately complete the brand research it was engaged tocarry out. The dispute between the parties has since been resolved by an out-of-courtsettlement, which provides for the brand research agency to pay Adler a concluding paymentof c250,000.

* Commission claim of recruitment agency

A recruitment agency is claiming commission from Adler in connection with the employment ofThomas Wanke. The amount claimed is 33% of his gross annual remuneration. Therecruitment agency lodged a preliminary claim for the commissions in the amount ofc150,000. To determine the actual amount of the alleged commissions claimed, therecruitment agency also brought an action to obtain information as to Thomas Wanke’s grossremuneration. Both actions were dismissed at first instances, however the recruitment agencyhas lodged an appeal against the decisions of the first instance.

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GENERAL INFORMATION ABOUT THE COMPANY

Formation, commercial register entry, company name and registered office

Adler Modemarkte AG, Haibach, is a stock corporation (Aktiengesellschaft) formed in Germany andorganised under the laws of the Federal Republic of Germany. It was formed pursuant to thereorganisation of Adler Modemarkte GmbH and recorded in the commercial register of the LocalCourt (Amtsgericht) of Aschaffenburg under HRB 11581 on 17 March 2011. The Company doesbusiness under its own name.

The Company’s business address is Industriestraße Ost 1-7, 63808 Haibach, Germany. TheCompany’s telephone number is +49 (0) 6021/6331217.

Company object

In accordance with § 2 of the Company’s Articles of Association, the object of the Company is theproduction, distribution and wholesale and retail selling of textiles and articles in the clothingindustry, such as menswear, women’s wear and kidswear, as well as the import and export ofsuch, and the provision of all related services. The Company may also operate restaurants. It isentitled to engage in all transactions and to take all measures which it deems appropriate to servethe object of the Company. It is entitled to establish branches in Germany and abroad and mayform, acquire, sell and take up equity interests in enterprises of all types. The Company maymanage enterprises and enter into corporate agreements with them or may limit its involvement toadministrative functions. It may spin off its operations in full or in part into affiliates. These rightsare not limited to Germany.

Financial year and term of the Company

The Company’s financial year begins on 1 January and ends on 31 December. The Company hasbeen formed for an indefinite term.

Group structure and affiliates

Adler Modemarkte AG is the parent of the Adler Group. The following chart provides an overviewof the structure of the Adler Group as at the date of this Offering Memorandum:

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No control and profit and loss transfer agreements exist within the Adler Group.

The following table provides an overview of Adler Modemarkte AG’s significant subsidiaries as atthe date of this Offering Memorandum. The financial information provided below relates to the 2010financial year and unless otherwise indicated was taken from the audited annual financialstatements of the respective subsidiary as at 31 December 2010, which were prepared inaccordance with accounting requirements applicable in each respective country.

Company name .............................................................. Adler Modemarkte Gesellschaft m.b.H.Shareholder ..................................................................... Adler Modemarkte AGRegistered office/country ................................................. Ansfelden, AustriaCommercial register entry................................................ Local Court of Linz, FN 134649pBalance sheet date .......................................................... 31 DecemberKey business ................................................................... Wholesale and retail trading in merchandise

of all types, and the import, export andtransit of merchandise of all types,particularly menswear, women’s wear andkidswear under the ‘‘Adler’’ brand, as wellas the creation of menswear, women’swear and kidswear under the ‘‘Adler’’ brandas well as investments in these and similarenterprises; men’s and women’s tailoring;hospitality services in restaurants, cafes,buffets, espresso bars, snack bars, icecream parlours and milk bars, limited toserving all types of meals and selling warmand cold prepared food, alcoholicbeverages in sealed containers, non-alcoholic beverages and the sale of suchbeverages in open containers; investmentsin these and similar enterprises.

Subscribed capital (in c thousand) (unaudited) ............... 37of which paid in (in c thousand) (unaudited) ................ 37

Reserves (in c thousand) (unaudited) ............................. 8,435Net profit/loss for the year (in c thousand) (unaudited) ... 9Investment book value according to the Company’s 2010

HGB Annual Financial Statements (based on theshares held (directly or indirectly) by the Company) (inc thousand) (audited) .................................................. 6,979

Investment income according to the Company’s 2010HGB Annual Financial Statements (in c thousand)(audited) ......................................................................

—

Amounts owed by the Company (in c thousand)(unaudited)...................................................................

—

Amounts due to the Company (in c thousand) (unaudited) 3,005

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Company name .............................................................. Adler Mode S. A.Shareholder ..................................................................... Adler Modemarkte AGRegistered office/country ................................................. Foetz, LuxemburgCommercial register entry................................................ Registre de Commerce et des Societes

Luxembourg, B27167Balance sheet date .......................................................... 31 DecemberKey business ................................................................... The administration and operation of one or

more businesses specialising in trade; thepurchase and sale of textiles, articles ofclothing, haberdashery and knitted goods,fashion accessories and jewellery and tradein similar articles which will be sold in thefuture as the result of new technicaldevelopments and the operation of anestablishment for serving alcoholic andnon-alcoholic beverages and the operationof restaurants, as well as all types offinancial and civil-law transactions andtransactions in movable assets and realestate which are related to this object orcould be expedient for the realisationthereof. The company may also acquireequity interests of all types in Luxembourg-based or foreign enterprises, providedthese have an analogous or related objector such equity interests serve thedevelopment and extension of its ownobject.

Subscribed capital (in c thousand) (unaudited) ............... 31of which paid in (in c thousand) (unaudited) ................ 31

Reserves (in c thousand) (unaudited) ............................. 539Net profit/loss for the year (in c thousand) (unaudited) ... 652Investment book value according to the Company’s 2010

HGB Annual Financial Statements (based on theshares held (directly or indirectly) by the Company) (inc thousand) (audited) .................................................. 31

Investment income according to the Company’s 2010HGB Annual Financial Statements (in c thousand)(audited) ......................................................................

—

Amounts owed by the Company (in c thousand)(unaudited)...................................................................

2,445

Amounts due to the Company (in c thousand) (unaudited) —

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Notices

Pursuant to the Articles of Association, Company notices are published in the electronic FederalGazette (Bundesanzeiger). Information to shareholders may also be transmitted via remote datatransfer, subject to their consent. Transmission of notifications pursuant to § 125 (2) German StockCorporation Act (Aktiengesetz, ‘‘AktG’’) is limited to electronic communication. The Executive Boardis authorised but not obligated to transmit such notifications by other means as well.

In compliance with the provisions of the German Securities Prospectus Act, notices in connectionwith the approval of this Offering Memorandum or supplements thereto must be published in themanner stipulated for this Offering Memorandum.

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INFORMATION ON THE CAPITAL OF THE COMPANY AND OTHER IMPORTANT PROVISIONS OFTHE ARTICLES OF ASSOCIATION

The following overview contains information on the Company’s share capital, which is divided intoshares, and its development since the Company was founded. It also contains information oncertain provisions of the Company’s Articles of Association and German law, which governs boththe Company and its shares.

Share capital and shares

The share capital of the Company prior to the implementation of the Offering is c15,860,000. It isdivided into 15,860,000 no-par value ordinary bearer shares. All of the shares are fully paid in.Each no-par value share represents a notional interest in the share capital of c1.00. Should thecapital increase of c2,650,000 still to be resolved by the Company’s Annual General Meeting forpurposes of the initial public offering (IPO) (the ‘‘Capital Increase for the IPO’’) be fullyimplemented, the Company’s share capital will be c18,510,000.00. The share capital will then bedivided into 18,510,000 no-par value ordinary bearer shares, each representing a notional interestin the share capital of c1.00.

The implementation of the Capital Increase for the IPO will be entered in the commercial registerof the Local Court of Aschaffenburg prior to admission of the shares to trading on the regulatedmarket (regulierter Markt) of the Frankfurt Stock Exchange (Prime Standard).

The shares into which the Company’s current share capital is divided are represented in a globalcertificate without a dividend coupon, which will be deposited with Clearstream prior to listing. Anadditional global certificate without a dividend coupon will be issued for the New Shares stemmingfrom the Capital Increase for the IPO and will likewise be deposited with Clearstream.

The holders of the Company’s no-par value shares hold co-ownership interests in the respectiveglobal certificates. The Executive Board stipulates the form and content of the share certificates aswell as any dividend and renewal coupons. The Company may consolidate individual shares intoshare certificates representing multiple shares (global shares, global certificates). Shareholders arenot entitled to receive definitive share certificates representing their shareholdings unless sorequired by the rules of any stock exchanges to which the shares are admitted. Nor areshareholders entitled to the issue of dividend and renewal coupons.

The Company’s shares are freely transferable in accordance with the provisions applicable tobearer shares. With the exception of the contractual restrictions on the Company and the SellingShareholder described in the section entitled ‘‘The Offering – Lock-up’’, there are no lock-uprequirements or restrictions on the transferability of the Company’s shares.

Development of the share capital

The Corporation was formed on 20 April 1993 when Adler Bekleidungswerk AG & Co. KG,Haibach, was reorganised as a German limited liability company (GmbH). It was recorded in thecommercial register of the Local Court (Amtsgericht) of Aschaffenburg (HRB 5202) under the nameAdler Modemarkte GmbH, with its registered seat in Haibach and share capital of DEM 6,000,000.The Company’s share capital was subsequently increased on several occasions and converted intoeuros; as at 6 October 2004, its share capital was c15,860,000.

By virtue of the resolution by the shareholders’ meeting on 1 March 2011, recorded in thecommercial register on 17 March 2011, the Company was reorganised as a stock corporation(Aktiengesellschaft) under German law. The Company’s share capital of c15,860,000 was dividedduring the reorganisation into 15,860,000 no-par value ordinary bearer shares, each representing anotional interest in the share capital of c1.00.

It is expected that on or before 3 June 2011, the Company’s Annual General Meeting will resolveto increase the share capital by issuing 2,650,000 new no-par value ordinary bearer shares againstcash contributions, subject to the exclusion of the Selling Shareholder’s pre-emptive rights, eachsuch share representing a notional interest in the share capital of c1.00. The Global Co-ordinator isto be authorised to underwrite the New Shares subject to the stipulation that the shares be offeredto investors as part of an initial public offering of the Company and the proceeds generated inexcess of the issue amount (less costs and commissions) be paid to the Company in accordancewith the agreement concluded with the Company. The Executive Board will be authorised tostipulate the individual details of the capital increase and the implementation thereof. Theimplementation of the capital increase will be entered in the commercial register entry of the

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Company prior to the admission of the Company’s shares to trading on the regulated market of theFrankfurt Stock Exchange.

For more details on the Company’s shareholder structure, see the section entitled ‘‘ShareholderStructure (Before and After the Offering)’’.

General provisions on capital increases

Even after the initial public offering, the Company may increase its share capital by resolution ofthe Annual General Meeting. Pursuant to the currently applicable Articles of Association, aresolution generally requires a simple majority of the voting share capital represented at theadoption of the resolution and concurrently the simple majority of votes cast. However, if non-voting preferred shares are to be issued (§ 182 (1) sentence 2 German Stock Corporation Act(Aktiengesetz, ‘‘AktG’’)), or if the resolution on the share capital increase provides for the exclusionof the shareholders’ pre-emptive rights (§ 186 (3) AktG) then, instead of a simple majority of thevoting share capital represented at the adoption of the resolution, a 75% majority of the sharecapital represented at the vote will be required. Pursuant to the German Stock Corporation Act,each shareholder is generally entitled to a pre-emptive right to subscribe for new shares to beissued pursuant to a capital increase (including convertible bonds, warrant-linked bonds, profitparticipation rights or participating bonds). Pre-emptive rights are freely transferable; trading in pre-emptive rights may be set up on the German stock exchanges during a prescribed period prior tothe expiration of the subscription period. The Annual General’ Meeting may exclude theShareholders’ pre-emptive rights with a minimum 75% majority of the share capital represented atadoption of the resolution. The Executive Board is required to submit to the Annual General’Meeting a written report setting out the grounds for the partial or complete exclusion of pre-emptiverights and justifying the proposed issue price. Pre-emptive rights may generally be excluded only incases where the Company’s interest in excluding them objectively outweighs the shareholders’interest in being granted such pre-emptive rights. Failing such a justification, pursuant to § 186 (3)sentence 4 AktG pre-emptive rights may be excluded when new shares are issued if the Companyincreases the capital against cash contributions, the amount of the capital increase does notexceed 10% of the existing share capital and at the same time the issue price of the new sharesis not substantially lower than the stock exchange price. Where the resolution on the capitalincrease specifies that the new shares are to be acquired by a credit institution or an enterprisewithin the meaning of § 53 (1) sentence 1 or § 53b (1) sentence 1 or (7) German Banking Act(Kreditwesengesetz, ‘‘KWG’’) subject to the obligation to offer such new shares to shareholders,this shall not constitute an exclusion of pre-emptive rights.

When new shares are issued, the dividend rights attaching thereto may differ from the stipulationsof § 60 (2) sentence 3 AktG.

Authorised capital

In accordance with the Articles of Association currently in force, the Executive Board is authorised,subject to the consent of the Supervisory Board, to increase the Company’s share capital againstcash or in-kind contributions, on one or several occasions in the period until 10 February 2016, bya total of up to c7,930,000 by issuing new no-par value bearer shares (authorised capital). Theshareholders shall generally be granted a pre-emptive right. The statutory pre-emptive right mayalso be granted in a manner whereby the New Shares are underwritten by a bank or bankingsyndicate subject to the obligation to offer such New Shares to the Company’s shareholders forsubscription.

However, the Executive Board shall be authorised, subject to the consent of the SupervisoryBoard, to exclude the shareholders’ statutory pre-emptive right (a) in the case of capital increasesagainst in-kind contributions that are performed specifically for the purpose of acquiring companies,parts of companies or equity investments in companies; (b) in the case of capital increases againstcash contributions where the issue price of the new shares to be issued subject to the exclusion ofpre-emptive rights pursuant to § 186 (3) sentence 4 AktG is not substantially lower than the stockexchange price of the Company’s shares of the same class and with the same features, andwhere the proportion of share capital attributable to the new shares to be issued subject to theexclusion of pre-emptive rights pursuant to § 186 (3) sentence 4 AktG does not in the aggregateexceed 10% of the share capital existing at the time the authorisation enters into effect or isexercised, provided that shares which were issued during the term of the authorisation until the

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date on which it is exercised by direct or analogous application of § 186 (3) sentence 4 AktG areto be counted toward this threshold of 10% of share capital; or (c) to avoid fractional amounts.

The Supervisory Board is authorised to duly amend the Articles of Association of the Companysubsequent to the full or partial exercise of authorised capital, particularly with respect to theamount of share capital and the number of existing no-par value shares.

Contingent capital and authorisation to issue warrant-linked and/or convertible bonds

Following the entry in the commercial register of an amendment to the Articles of Association stillto be resolved by the Annual General Meeting, which is expected to take place on or before thefinal day of the Offering Period, the Executive Board will foreseeably be authorised, subject to theSupervisory Board’s consent, to increase the Company’s share capital on a contingent basis byc7,930,000 through the issue of up to 7,930,000 no-par value ordinary bearer shares. Thecontingent capital increase will serve the sole purpose of granting shares to holders of warrant-linked and/or convertible bonds issued by the Company until 30 April 2016 on the basis of theauthorisation granted by the Annual General Meeting. Pursuant to the terms and conditions of theconvertible bonds, the contingent capital increase will also serve the purpose of issuing shares toholders of convertible bonds carrying conversion obligations. The contingent capital increase will beimplemented only to the extent that the holders of the warrant-linked and/or convertible bondsexercise their conversion or option rights, or the holders of the convertible bonds under aconversion obligation satisfy such obligation, and to the extent that no cash compensation is madeor already existing shares are used to satisfy these rights. The New Shares will be issued at therespective option or conversion price to be determined in accordance with the authorisationresolution of the Company’s Annual General Meeting. The New Shares will carry dividend rights asfrom the commencement of the financial year in which they are created as a result of the exerciseof option or conversion rights or the satisfaction of conversion obligations. Subject to theSupervisory Board’s consent, the Executive Board will be authorised to determine the furtherdetails of the implementation of the contingent capital increase.

Following a corresponding resolution by the Company’s Annual General Meeting, which is expectedto be adopted on or before the final day of the Offering Period, the Executive Board will beauthorised, subject to the Supervisory Board’s consent, to issue, on one more occasions on orbefore 30 April 2016, warrant-linked and/or convertible bonds with a total nominal amount of up toc250,000,000 with a maximum term to maturity of 20 years and, subject to the specific stipulationsof the respective terms and conditions of the warrant-linked and/or convertible bonds, to grantoption rights to the holders of warrant-linked bonds and conversion rights to the holders ofconvertible bonds in respect of up to c7,930,000 no-par value ordinary bearer shares of theCompany.

The bonds may be issued both in euro and the national currency of an OECD country, providedthe corresponding euro equivalent limits are adhered to. They may also be issued by a domesticor foreign company in which the Company directly or indirectly holds the majority of votes andcapital (hereinafter ‘‘Majority-held Affiliated Company’’). In this case the Executive Board will beauthorised to assume the guarantee on behalf of the issuing company regarding the redemption ofthe bonds and to grant shares of the Company to the holders of such bonds to satisfy the optionor conversion rights attached to such bonds.

Subject to the specific stipulations of the bond terms and conditions, the holders or creditors ofconvertible bonds will be entitled to exchange their convertible bonds for New Shares of theCompany. The terms and conditions may also provide for a conversion obligation at the end of theterm or an earlier date. In this case the terms and conditions may provide that the Company shallbe entitled to compensate fully or partially in cash any difference between the nominal amount ofthe bond and a stock market price of the shares at the time of the conversion obligation to bespecified in the bond terms and conditions (the ‘‘Market Price at the Time of Conversion’’),multiplied by the conversion ratio. However, the Market Price at the Time of Conversion mustamount to at least 80% of the market price of the Company’s shares (calculated on the basis setforth below) at the time the bonds are issued.

In the case where warrant-linked bonds are issued, one or more warrants will be attached to eachbond which entitle the bearer to subscribe for New Shares of the Company in accordance with thewarrant terms and conditions to be stipulated by the Executive Board. The term of the option rightmay not exceed twenty years. The proportionate amount of the share capital attributable to the no-

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par value shares to be subscribed for per warrant-linked bond may not exceed the nominal amountof the warrant-linked bond.

For convertible bonds, the conversion ratio is determined by dividing the nominal amount of onebond by the fixed conversion price for one New Share of the Company. The conversion ratio mayalso be determined by dividing the issue price of one bond that is less than the nominal amount bythe fixed conversion price for obtaining one New Share of the Company. The terms and conditionsmay also provide that the conversion ratio shall be variable and may be rounded up or down to aneven figure; in addition, a supplementary cash payment may be stipulated. Furthermore, the termsand conditions may provide for fractional amounts to be combined or compensated for in cash Theproportionate amount of the share capital represented by the shares to be issued upon conversion,or to be subscribed for upon exercise of the option, may on no account exceed the nominalamount and issue price of the convertible or warrant-linked bonds

The warrant-linked and convertible bonds (bonds) may also be issued against in-kind contributionsif the value of the in-kind contributions reflects the issue price, which may not be substantiallylower than the theoretical market value of the bonds as established in accordance with recognisedprinciples of financial mathematics.

Shareholders will generally be entitled to the statutory pre-emptive rights upon issue of the bonds.The bonds may also be offered to shareholders by way of an indirect subscription right; in thiscase, they will be underwritten by a bank or banking syndicate with the obligation of offering thebonds to the shareholders for subscription. However, the Executive Board will be authorised,subject to the consent of the Supervisory Board, to exclude shareholders’ pre-emptive rights withrespect to the bonds in the following cases:

* in order to exclude fractional amounts resulting from the subscription ratio from theshareholders’ pre-emptive right,

* if (i) they are issued against cash contributions and (ii) the issue price is not significantlylower than the theoretical market value of the bonds as calculated in accordance withgenerally accepted actuarial methods; this shall apply, however, only to the extent that theshares to be issued in order to satisfy the option and/or conversion rights thereby created donot in the aggregate exceed 10% of the registered share capital, neither at the time thisauthorisation becomes effective nor at the time it is exercised. This figure shall take intoaccount the proportionate amount of the share capital attributable to the shares issued fromauthorised capital during the period from the date of the Annual General Meeting resolving onthe authorisation to the end of the term of this authorisation by way of a cash capital increaseunder exclusion of the pre-emptive rights in accordance with § 186 (3) sentence 4 AktG.Furthermore, this figure shall take into account the proportionate amount of the share capitalattributable to own shares (treasury shares) sold during the term of this authorisation with theexclusion of pre-emptive rights by analogous application of § 186 (3) sentence 4 AktG,

* where bonds are issued against in-kind contributions and the exclusion of pre-emptive rightsis in the interests of the Company,

* where necessary in order to grant holders of convertible bonds, warrants or convertible profitparticipation rights issued by the Company or its subordinate group companies a pre-emptiveright to the extent that such right would be available to them after exercising the rights orafter satisfying the conversion obligations.

The option or conversion price will be calculated on the basis of the following principles: Evenwhen the following anti-dilution rules are applied, the option or conversion price must amount to atleast 80% of the volume-weighted average market price of the Company’s shares in the XETRAtrading system of the Frankfurt Stock Exchange (or a comparable successor system) during theperiod between commencement of the book-building procedure and the final setting of the bondprice by the banks accompanying the issue or, if shareholders are eligible to subscribe for thebonds, during the subscription period, with the exception of the last four exchange trading daysprior to such period’s expiry, or over the ten trading days prior to the date of the Executive Board’sresolution on the issue of the bonds. The terms and conditions may also provide that, dependingon the share price performance or based on the anti-dilution provisions, the option or conversionprice may be amended during the bond’s period of validity provided such amendments fall withinthe fluctuation margin to be set by the Executive Board.

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Notwithstanding § 9 (1) AktG, the option or conversion price may be reduced under an anti-dilutionclause in accordance with the terms and conditions by payment of a corresponding amount in cashupon exercise of the conversion right or by reduction of the supplementary payment if, during theoption or conversion period, the Company increases the share capital while granting itsshareholders pre-emptive rights, or if the Company and/or its Majority-held Affiliated Companyissue additional warrant-linked or convertible bonds or grant any other option rights and do notgrant the holders of (existing) option or conversion rights pre-emptive rights to the extent to whichthey would have been entitled after exercising the option or conversion rights. Instead of a cashpayment or a reduction of the supplementary payment the conversion ratio may also – to theextent possible – be adjusted by dividing it with the reduced conversion price. In addition, theterms and conditions may provide for an adjustment of the option and conversion rights in the caseof a capital reduction or measures resulting in a dilution of the value of the issued shares of theCompany.

The terms and conditions may provide or permit that the Company shall not grant the holders ofoption or conversion rights shares of the Company but instead pays an equivalent amount in cashin accordance with the terms and conditions. The terms and conditions may also provide that thebonds may, at the Company’s option, be converted into already existing shares of the Companyinstead of into new shares out of contingent capital, or that the option right or the option obligationmay be satisfied by delivery of such shares.

The Executive Board will be authorised, subject to the consent of the Supervisory Board, tostipulate the terms and conditions of the bonds as well as the further details of the issuance andfeatures of the warrant-linked and/or convertible bonds, particularly with respect to interest rate,issue price, term to maturity and denomination, and to stipulate the option or conversion period.

As at the date of this Offering Memorandum, no option or conversion rights regarding shares of theCompany have been issued. At present, there are no definite plans for any such issue.

Authorisation to acquire treasury shares

The Company currently holds no treasury shares. However, following a corresponding resolution bythe Company’s Annual General Meeting, which is expected to be adopted during the first week ofthe Offering Period, the Company will foreseeably be authorised, subject to the SupervisoryBoard’s consent, to acquire treasury shares representing a total of up to 10% of the share capitalexisting at the time of the adoption of the resolution. Such authorisation will be valid until 30 April2016. Any acquisition for the purpose of trading in treasury shares will be precluded. The sharesacquired under this authorisation together with other shares of the Company which the Companyhas acquired, but does not yet own at the time of acquisition may not represent more than 10% ofthe share capital. The authorisation may be exercised in whole or in partial amounts once on oneor more occasions by the Company or by dependent companies or entities in which the Companyhas a majority shareholding, or by third parties acting for the account of the Company ordependent companies or entities in which the Company has a majority shareholding. Treasuryshares may be acquired over the stock exchange or by way of a public purchase offer directed toall shareholders. If the shares are acquired over the stock exchange, the consideration paid pershare (excluding ancillary acquisition costs) will not be permitted to be more than 10% above orbelow the price determined for the share on the relevant stock exchange trading day in theopening auction of the XETRA trading system (or a comparable successor system). If the sharesare acquired by way of a public purchase offer, the purchase price offered or the minimum andmaximum amounts of the purchase price range per share (excluding ancillary acquisition costs) willnot be permitted to be more than 10% above or below the closing price in the XETRA tradingsystem (or a comparable successor system) on the third stock exchange trading day preceding theday of the public announcement of the purchase offer. If, following publication of a public purchaseoffer, there are significant deviations from the relevant price, the purchase offer may be adjusted.In this case, the price on the third stock exchange trading day preceding the public announcementof any such adjustment will be relevant. The volume of the offer may be restricted. If the offer isover-subscribed, acceptance of the offer must take place on a pro rata basis. A preferentialacceptance of smaller units of up to 100 tendered shares per shareholder may be stipulated. TheExecutive Board will be authorised, subject to the consent of the Supervisory Board, to usetreasury shares of the Company that are acquired pursuant to this authorisation for the followingpurposes: (i) the shares may be cancelled without the need for a separate resolution herefor bythe Annual General Meeting. The authorisation for cancellation may be exercised in whole or in

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partial amounts and will result in a reduction of the share capital. Alternatively, the Executive Boardmay determine that the share capital will not be reduced and that the cancellation will insteadresult in the proportionate interest in the share capital held by the other shareholders beingincreased pursuant to § 8 (3) AktG, in which case, the Executive Board will be authorised to adjustthe Articles of Association with respect to the number of shares set forth therein, (ii) the sharesmay be offered and transferred to third parties in connection with company mergers or theacquisition of companies or equity investments in companies, (iii) the shares may be offered forpurchase and transferred to Executive Board members, employees of the Company or its Groupcompanies, (iv) the shares may be offered for purchase and transferred to third parties who, asstrategic partners of the Company or its Group companies, play a significant role in assisting theCompany to achieve its corporate goals, (v) the shares may be used to satisfy the obligations ofthe Company arising out of convertible bonds issued or guaranteed by it.

Shareholding notification requirements, takeover offers and exclusion of minority shareholders(squeeze-out)

Disclosure of shareholdings in listed companies

The German Securities Trading Act (Wertpapierhandelsgesetz, ‘‘WpHG’’) stipulates that anyshareholder whose voting interest in a listed company reaches, exceeds or falls below 3%, 5%,10%, 15%, 20%, 25%, 30%, 50% or 75% through acquisition, sale or by other means, mustpromptly notify the relevant company and the German Federal Financial Supervisory Authority(Bundesanstalt fur Finanzdienstleistungsaufsicht, ‘‘BaFin’’) in writing or by fax and no later thanwithin four trading days of the fact that (i) any of the aforementioned thresholds have beenreached, exceeded or are no longer met, and report (ii) the total voting interest now held. Thenotice period begins on the date upon which the party subject to the notification requirement knowsin fact, or, based on circumstances, should have known that its voting interest reached, exceededor fell below any of the aforementioned thresholds. In calculating the voting thresholds under theGerman Securities Trading Act, the voting rights of certain parties affiliated or acting in concert withthe shareholder are to be counted toward this threshold. Acting in concert is assumed ifshareholders co-ordinate the exercise of their voting rights at the annual general meetings of thecompany or co-ordinate their conduct outside the annual general meeting with the aim ofpermanently and materially changing the company’s corporate strategy. An agreement in a specificcase, on the other hand, will not be deemed acting in concert. Also to be counted are those votingrights attaching to shares which are held by a third party for the account of the notifyingshareholder, which were transferred to a third party as security and with respect to which ausufructory right has been created in favour of the notifying shareholder, which may be acquired bythe notifying shareholder by way of a binding declaration of intent and which are entrusted to thenotifying shareholder or under which it may exercise voting rights as proxy.

Similar obligations to notify the Company and BaFin apply in the case of other financialinstruments which allow the holder to unilaterally acquire, pursuant to a legally binding agreement,Company shares that have already been issued and which carry voting rights. In such case,disclosure is required when the respective interest reaches, exceeds or falls below any of theabove thresholds, with the exception of the 3% threshold. In determining the relevant thresholds fornotification, shareholdings in the form of the foregoing financial instruments are combined withshareholdings in the form of voting shares.

Pursuant to Art. 1 no. 3 in conjunction with Art. 9 (3) of the German Investor Protection andCapital Markets Improvement Act (Anlegerschutz- und Funktionsverbesserungsgesetzes, ‘‘AnsFuG’’;Federal Law Gazette (BGBl.) 2011 I, p.538), which entered into force on 8 April 2011, beginningon 1 February 2012, a new § 25a of the German Securities Trading Act (WpHG) will enter intoforce, which expands the notification requirements of § 25 WpHG to include other financialinstruments not covered by § 25 WpHG.

Failure of a shareholder to give the required notification will operate to preclude such shareholderfrom exercising the rights attaching to its shares (including its voting rights and the right to receivedividends) for the term of default. Furthermore, failure to comply with notification requirements maybe penalised by the imposition of a statutory fine. If due to wilful or grossly negligent conduct, ashareholder fails to file notification that the reportable voting threshold had been reached, exceededor was not met or files an incorrect notification as to the amount of the voting interest held, theshareholder’s voting rights may be suspended for a period of up to six months after the receipt ofthe improper notification. This shall not apply where the voting interest specified in the previous

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incorrect notification deviates from the actual voting interest by less than 10% and there was nofailure to file notification that any voting threshold specified had been reached, exceeded or wasnot met.

Where the shareholder or person held attributable by law is an investment services firm, thoseshares or other financial instruments which are held in the trading portfolio and with respect towhich it has been ensured that the voting rights attaching thereto will not be exercised and do notrepresent more than 5% of the voting shares nor convey the right to acquire more than 5% of thevoting shares, shall not be counted.

The Company must publish the notifications received by it without undue delay, and no later,however, than three trading days following receipt thereof and advise BaFin of such publication. Atthe end of a given month in which voting rights have increased or decreased, the Company mustalso publish a notification of the total number of voting rights and notify BaFin of the publication.The notifications and the information on the total number of voting rights must also be transmittedto the company register for recording without undue delay, but not prior to publication thereof.

Any shareholder whose voting interest from shares reaches or exceeds the 10% threshold mustdisclose to the issuer within 20 trading days the objectives pursued with the acquisition of thevoting rights as well as the origin of the funds used for the acquisition, unless the Articles ofAssociation provide otherwise. Similarly, any changes to targets must be notified within 20 tradingdays. In calculating the thresholds, the voting rights of specific persons must be counted inaccordance with the foregoing rules.

Mandatory takeover offers and squeeze-out of minority shareholders

Under the provisions of the German Securities Acquisition and Takeover Act (Wertpapiererwerbs-und Ubernahmegesetz), shareholders who acquire 30% or more of the voting rights in a listedstock corporation (‘‘Offeror’’) are required to publish this fact along with the percentage of theirvoting interest and thereafter (provided no exemption from this obligation has been granted) makea mandatory offer to all shareholders in the target company. In calculating this 30% threshold, thevoting rights of certain parties affiliated or acting in concert with the shareholder are to be countedtoward this threshold. The relevant provisions of the German Securities Acquisition and TakeoverAct correspond to those of the German Securities Trading Act described in ‘‘Disclosure ofshareholdings in listed companies’’ except for the provisions on financial instruments, which grantthe holder a unilateral right of acquisition.

If a shareholder fails to disclose that the 30% threshold was reached or exceeded or fails tosubmit a mandatory public offer, it will be precluded from exercising the rights attached to theseshares (including the voting right and the right to received dividends) while such default subsists. Inaddition, an administrative fine may be imposed in the event of failure to comply with duties ofnotification.

If, after the takeover offer, the Offeror holds at least 95% of the voting capital of the targetcompany it may petition for the remaining voting shares to be transferred to it by way of a courtorder against the grant of reasonable settlement (‘‘Squeeze-out under Takeover Law’’). If theforegoing takeover offer achieves an acceptance rate of at least 90% of the share capital underthe offer, the offer price shall be deemed a reasonable settlement. Otherwise, the settlement shallbe set by the court.

In addition, the annual general meeting of a German stock corporation may, at the request of ashareholder holding at least 95% of the share capital (‘‘Principal Shareholder’’), resolve totransfer the shares from the remaining shareholders (‘‘Minority Shareholders’’) to the PrincipalShareholder in return for a reasonable cash settlement equivalent to the proportionate economicvalue of the company (‘‘Squeeze-out under Stock Corporation Law’’). The annual generalmeeting of a stock corporation may also resolve the integration (Eingliederung) into anotherdomestic stock corporation (‘‘Principal Entity’’) provided that at least 95% of the shares of thecompany to be integrated are held by the Principal Entity. The departing shareholders in thecompany being integrated are entitled to a reasonable settlement, which is generally to be grantedin the form of shares in the Principal Entity and is determined based on the ratio between theenterprise value of the Principal Entity and that of the company being integrated.

Disclosure of transactions by persons exercising executive responsibilities at a listed company

Under the German Securities Trading Act, persons exercising executive responsibilities at a listedcompany (‘‘Executives’’) are under an obligation to notify the Company and BaFin within five

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business days of their transactions involving shares of the Company or related financialinstruments, in particular, derivatives. The foregoing also applies to persons closely related to suchExecutives. The Company is required to publish such notice promptly following receipt and send acopy thereof to BaFin and to the companies’ register following publication. The reporting obligationshall not apply provided the total aggregate value of the transactions with an Executive and closelyrelated parties of such person is less than c5,000 within a single calendar year.

Executives are members of a management, administrative or supervisory body of the stockcorporation as well as other persons having regular access to insider information within themeaning of the German Securities Trading Act and who are authorised to make material businessdecisions.

The following constitute persons closely related to an Executive: spouses, registered partners,dependent children and other relatives who have been living in the same household as theExecutive for at least one year as of the date of the transaction to be notified. Legal entities atwhich the aforementioned person exercises executive responsibilities are also subject to thereporting obligation. The aforementioned provision also applies to those legal entities, companiesand institutions which are directly or indirectly controlled by an Executive or any party closelyrelated to an Executive, were formed for the benefit of any such person, or whose economicinterest largely reflects those of any such person.

Parties at fault for failure to comply with a reporting obligation may be penalised by the impositionof a fine.

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CORPORATE BODIES OF THE COMPANY AND EMPLOYEES

Overview

The corporate bodies of the Company are the Executive Board (Vorstand), the Supervisory Board(Aufsichtsrat) and the Annual General Meeting. The powers of these corporate bodies aregoverned, inter alia, by the German Stock Corporation Act (Aktiengesetz, ‘‘AktG’’), the GermanReorganisation Act (Umwandlungsgesetz), the German Securities Acquisition and Takeover Act(Wertpapiererwerbs- und Ubernahmegesetz), the Articles of Association and the respective rules ofprocedure of the Company’s Executive Board and Supervisory Board.

The Executive Board manages the Company at its own responsibility in accordance with the lawsof the Federal Republic of Germany, the provisions of the Articles of Association and of the rulesof procedure of the Executive Board and in compliance with the resolutions of the Annual GeneralMeeting and the Supervisory Board. The Executive Board represents the Company in its dealingswith third parties. The Executive Board must ensure that an appropriate risk management andinternal monitoring system is set up and operated within the Company in order to facilitate theearly identification of developments that might jeopardise the continued existence of the Company.

The members of the Executive Board are appointed and dismissed by the Supervisory Board. TheExecutive Board has a duty to report to the Supervisory Board. It must report to the SupervisoryBoard regularly, promptly and comprehensively on all issues of relevance to the Company withrespect to planning, business development, the risk situation, risk management, strategic measuresand other relevant circumstances affecting the Company. Moreover, reports must be presented tothe chairman of the Supervisory Board on other important occasions. Furthermore, the SupervisoryBoard may request a report on Company matters at any time.

The Supervisory Board is responsible for monitoring and advising the Executive Board in theexecution of its management duties. Generally speaking, a member of the Company’s SupervisoryBoard may not at the same time be a member of the Company’s Executive Board. Under Germanstock corporation law, measures relating to management may not be transferred to the SupervisoryBoard. However, the Articles of Association or the Supervisory Board must stipulate that certaintypes of transactions may be undertaken only subject to its consent.

The members of the Executive Board and the Supervisory Board have fiduciary duties and dutiesof care toward the Company. In discharging these duties, a broad range of interests, in particularthose of the Company, its shareholders, its employees, its creditors and the general public, mustbe taken into account. In particular, the Executive Board must also take into account theshareholders’ rights to equal treatment and equal information.

According to German stock corporation law, individual shareholders – like any other person – areprohibited from using their influence on the Company to cause a member of the Executive Boardor Supervisory Board to act in a manner that would damage the Company. Any person who useshis or her influence to cause a member of the Executive Board or the Supervisory Board, acommercial attorney-in-fact (Prokurist) or an authorised agent to act in a manner that damages theCompany or its shareholders is required to compensate the Company for the damage suffered byit as a result. In addition, the members of the Executive Board and Supervisory Board are jointlyand severally liable if they have acted in breach of their duties and the Company has suffereddamage as a result.

Generally, a shareholder has no standing to bring a court action against members of the ExecutiveBoard or the Supervisory Board if such shareholder believes that the relevant members havebreached their duties toward the Company and that the Company has suffered damage as aresult. As a rule, compensatory damages claims on the part of the Company against members ofthe Executive Board or the Supervisory Board may be enforced only by the Company itself, inwhich respect the Company is represented by the Executive Board in the event of claims againstSupervisory Board members, and by the Supervisory Board in the event of claims againstExecutive Board members. According to a decision by the German Federal Supreme Court(Bundesgerichtshof, ‘‘BGH’’), the Supervisory Board is required to assert against the ExecutiveBoard any compensatory damages claims that are foreseeably enforceable, unless there aresignificant reasons involving the Company’s welfare that argue against the assertion of such claimsand such arguments outweigh or are at least equal to the arguments in favour of asserting them.Should the respective corporate body authorised to represent the Company decide not to prosecutea claim, compensatory damages claims of the Company against members of the Executive Boardor the Supervisory Board must be asserted if the Annual General Meeting resolves to do so by a

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simple majority, although the Annual General Meeting may appoint a special representative toassert the claims. Shareholders whose shares collectively represent 10% of the share capital or apro rata amount of c1,000,000 may also apply for judicial appointment of a special representativeto assert the compensatory damages claims, who, if appointed, becomes responsible for this inplace of the Company’s corporate bodies. If there are facts in evidence that justify a strongsuspicion that the Company has suffered damage as a result of impropriety or a gross breach ofthe law or the Articles of Association, shareholders whose shares collectively represent 1% of theshare capital or a pro rata amount of c100,000 also have the option, subject to certainrequirements, to be granted leave by the competent court to assert compensatory damages claimsof the Company against members of the relevant corporate bodies in their own name on behalf ofthe Company. Such an action will become inadmissible if the Company itself brings an action fordamages.

The Company may not waive or settle compensatory damages claims against members of thecorporate bodies until three years after a given claim has vested, and then only if the shareholdersresolve to do so by a simple majority of votes cast at the Annual General Meeting and providedthat no minority of shareholders whose shares collectively represent at least 10% of the sharecapital place an objection on the record.

Executive Board

Introduction

Pursuant to the Company’s Articles of Association, the Executive Board is composed of at leasttwo members. The Supervisory Board stipulates the number of Executive Board members andappoints them. The Company’s Executive Board currently has three members. The SupervisoryBoard may appoint one member of the Executive Board as Chief Executive Officer (CEO). TheSupervisory Board dismisses members of the Executive Board. Executive Board members areappointed for a maximum term of five years. Reappointment or an extension of the term of officefor up to an additional five years is permissible. The Supervisory Board may revoke theappointment of an Executive Board member for good cause prior to expiry of his or her term ofoffice, such as in cases of a gross breach of duty, an inability to duly manage the Company’sbusiness or a vote of no confidence in the Executive Board member by the Annual GeneralMeeting, unless the vote of no confidence was clearly on subjective grounds. The formal legalrelationship created by virtue of appointment of an Executive Board member is to be distinguishedfrom the contract of service between the Executive Board member and the Company. The contractof service also has a maximum term of five years, although it is permissible to provide for anautomatic renewal of the contract of service in the event of reappointment. Otherwise, theprovisions of the German Civil Code (Burgerliches Gesetzbuch, ‘‘BGB’’) on service relationshipsapply to the employment relationship and termination thereof.

Management and representation

The members of the Executive Board conduct the business of the Company jointly and withcollective responsibility (Kollegialprinzip). Therefore they are obliged to inform each other regularlyon all material transactions and the course of business within their respective areas ofresponsibility. To the extent measures and transactions within one Executive Board member’s areaof responsibility affect that or those of another, those involved shall endeavour to co-ordinate withone another. If consensus cannot be reached, the Executive Board members involved shall havethe Executive Board adopt a resolution thereon. Any Executive Board member who has seriousconcerns about any matter involving another Executive Board member shall seek to obtain a boardresolution unless his/her concern can be allayed by discussing the matter with the other ExecutiveBoard member. Notwithstanding the collective responsibility of the Executive Board, the SupervisoryBoard shall issue rules of procedure for the Executive Board. Pursuant to the Company’s Articlesof Association, resolutions of the Executive Board are adopted by a simple majority of theExecutive Board members participating in the adoption of the resolution unless the law or the rulesof procedure stipulate a different majority. In the event of a tie, the Chairman shall have thecasting vote.

The applicable rules of procedure stipulate that the Executive Board requires the consent of theSupervisory Board for various transactions. The Executive Board is also required to obtain theSupervisory Board’s consent in those cases where it is involved in transactions or measures at acontrolled entity of the Company which require Supervisory Board’s consent under the rules of

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procedure and the relevant transactions or measures would require consent if the controlled entitywere not an independent part of the Company’s business. The Supervisory Board may makeadditional transactions contingent upon its consent or restrict the group of transactions requiring itsconsent. Consent must be obtained before the relevant transaction or measure is effected. Priorconsent shall not be required in those cases where the matter is evidently urgent, the transactionor measure has been co-ordinated and agreed with the chairman of the Supervisory Board andwhere the Executive Board can in its due discretion assume that the Supervisory Board willapprove the transaction or measure. In such cases, the Executive Board shall inform theSupervisory Board of the transaction or measure without undue delay.

The Company is legally represented by two members of the Executive Board or by one member ofthe Executive Board acting jointly with a commercial attorney-in-fact (Prokurist). The SupervisoryBoard may grant one or several members of the Executive Board the right to represent theCompany alone. The Supervisory Board may exempt all or individual members of the ExecutiveBoard generally or in individual cases from the prohibition on self-dealing under § 181 limb 2 BGB.Currently, Lothar Schafer is the only person authorised to represent the Company alone and whois exempt from the prohibition against self-dealing pursuant to § 181 limb 2 BGB.

Members of the Executive Board

The members of the Company’s Executive Board and their respective areas or responsibility areset forth in the following overview.

Name Appointed tothe Executive

Board on

Appointed fora term of

Competencies

Lothar Schafer (CEO) ........... 4 March 2011 3 years Strategy, Purchasing, Logistics,Supply Chain Management,Quality Control, PR and IR

Jochen Strack ....................... 4 March 2011 3 years Accounting and Controlling,Human Resources, InternalAudit, Legal and IT

Thomas Wanke ..................... 4 March 2011 3 years Sales, Marketing, VisualMerchandising, Expansion

Lothar Schafer

Lothar Schafer (born 1965) studied mechanical engineering at the Cologne University of AppliedSciences (Fachhochschule Koln) from 1985 to 1989, earning a degree in Engineering (Diplom-Ingenieur). Thereafter, he worked until 1990 as a test engineer in the R&D department of JeanWalterscheid GmbH. From 1990 to 1995, Lothar Schafer was employed at Harmonic DriveAntriebstechnik GmbH, initially as a design engineer, then as Product Manager and later as AreaSales Manager, Export. In 1995, he relocated to the Swiss firm, Roulement Miniature SA RMB AG,where he worked until 2001 first as Product Manager and later as Head of Marketing; he wasManaging Director of RMB Ltd. in the UK. From 1998 to 2000 he was enrolled in the WHU – OttoBensheim School of Management’s (WHU-Koblenz-Vallendar) part-time executive MBA programmewith Northwestern University, Evanston, USA (Kellogg), and was awarded a Master of BusinessAdministration (Kellogg-WHU). From 2001 to 2003, Lothar Schafer worked as BusinessDevelopment Manager for Yole Developpement SA on a freelance basis and was a member ofmanagement of Land- und Gartentechnik Schafer GmbH Landmaschine-Gartengerate-Automobile.In 2003 and 2004 he also worked as Managing Director at EXMAR Armaturen GmbH. From 2004to 2008, Lothar Schafer was Chief Operating Officer of two affiliates of Arques Industries AG,E.Missel GmbH & Co KG and Jahnel-Kestermann GmbH & Co. KG, and from 2009 to 2011 hewas Managing Director of MOTEX and Amoda GmbH. From 2009 to 2010, Lothar Schafer wasalso Managing Director of Adler Atelier Moden GmbH, Haibach, which was merged into ADVERSGmbH on 28 December 2010. Since 2009, Lothar Schafer has been Managing Director of AdlerModemarkte Gesellschaft m.b.H, Austria, and ADVERS GmbH (prior to 19 May 2010, ‘‘AdversVersicherungsmakler GmbH’’). Lothar Schafer has also held a position on the board of directors ofAdler Mode S.A., Foetz/Luxembourg since 2009, and as Managing Director of Adler Asset GmbH(prior to 31 December 2010, ‘‘F.W. Woolworth Co. Ges.m.b.H.’’). In March 2009, Lothar Schaferwas appointed Managing Director (CEO) of Adler Modemarkte GmbH. Following the adoption ofthe resolution on the reorganisation into a German stock corporation, he was appointed to the

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Company’s Executive Board where he is responsible for Strategy, Purchasing, Logistics, SupplyChain Management, Quality Control, PR and IR.

Beyond the aforementioned, Lothar Schafer has not held any other positions as a member of amanagement, administrative or supervisory body or a partner in companies or enterprises outsideof Adler during the past five years.

Jochen Strack

Jochen Strack (born 1960) completed his education as a tax officer (Finanzwirt) at the HesseRevenue Authority (Hessische Finanzveraltung) from 1977 to 1979. From 1979 to 1991 he workedas a tax officer at the Hesse Revenue Authority in Frankfurt and Gießen. From 1991 to 1997,Jochen Strack was Head of Tax Consulting (Leiter der Abteilung Steuerberatung) at Hohlweck,Arnold, Schulte & Mayer in Linden. From 1995 to 1997, he also held the position of ManagingDirector of FAHOMA Vermietungs- u. Verpachtungsgesell. mbH in Friedrichroda. Jochen Strackwas also President of HOST Consulting Inc. in Cape Coral, USA from 1996 to 2000. In 1998, healso worked as Head of Audit (Prufungsleiter) of Hessische TreuhandWirtschaftsprufungsgesellschaft GmbH in Gießen. From 1999 to 2002, Jochen Strack worked asController, and from 2000 as a commercial attorney-in-fact (Prokurist) at COS Distribution AG inLinden. From 1999 to 2002 he was also a commercial attorney-in-fact at TOPEDO GmbH. From2002 to 2009, Jochen Strack was Chief Financial Officer (CFO) of COS Distribution AG. From2007 to 2009, he was appointed Managing Director (CFO) of COS Distribution GmbH in Lindenand its subsidiaries, Avitos GmbH, E-Logistics GmbH, TOPEDO-IT Handels GmbH and tisconHandelsgesellschaft GmbH. In September 2009, Jochen Strack was appointed Managing Director(CFO) of Adler Modemarkte GmbH and following the adoption of the resolution on reorganising theCompany into a German stock corporation, he was appointed to the Executive Board, where he isresponsible for Accounting and Controlling, Human Resources, Internal Audit, Legal and IT. InMarch 2011, Jochen Strack was also appointed the Company’s Labour Relations Officer(Arbeitsdirektor). Since 2009, Jochen Strack has also functioned as Managing Director of AdlerModemarkte Gesellschaft m.b.H. and since 2010 as Managing Director of Adler Asset GmbH (priorto 31 December 2010, ‘‘F.W. Woolworth Co. Ges. m.b.H.’’).

Beyond the aforementioned, Jochen Strack has not held any other positions as a member of amanagement, administrative or supervisory body or a partner in companies or enterprises outsideof Adler during the past five years.

Thomas Wanke

Thomas Wanke (born 1961) completed training as retail salesman (Einzelhandelskaufmann) atPeek & Cloppenburg in Dusseldorf in 1982 and as assistant manager (Substitut) in 1985. He thenwent on to complete his Chamber of Commerce and Industry (IHK) certification as a salesspecialist (Handelsfachwirt) at the Essen Business Training Centre (Bildungswerk der EssenerWirtschaft) in 1986. From 1979 to 1986 he worked as Department Manager at Peek &Cloppenburg in Dusseldorf. From 1986 to 1990, Thomas Wanke was Branch Manager at TakkoFashion and from 1990 to 1995 Managing Director at the textiles store (Textilhaus) Cramer &Meermann. In 1995, he attended the Essen Academy of Business and Administration (Verwaltungs-und Wirtschaftsakademie Essen), earning a degree in business administration (Diplom Betriebswirt(VWA)). From 1996 to 1999 he worked as National Sales Manager at Ernsting’s family. From 1999to 2000, Thomas Wanke was Divisional Managing Director/Regional Managing Director atSinnLeffers AG, from 2000 to 2006 Managing Director, Germany, at Charles Vogele AG, and from2006 to 2008 Managing Director, Germany, at Obi Bau und Heimwerkermarkte. From 2008 to2009, he was Managing Director of TAKKO Holding GmbH. Since 2009, Thomas Wanke has beenManaging Director of Adler Modemarkte Gesellschaft m.b.H. in Austria. In 2009, he becameManaging Director of Adler Modemarkte GmbH. Following the adoption of the resolution onreorganising the Company into a German stock corporation, Thomas Wanke was appointed to theCompany’s Executive Board, where he is responsible for Sales, Marketing, Visual Merchandisingand Expansion.

Beyond the aforementioned, Thomas Wanke has not held any other positions as a member of amanagement, administrative or supervisory body or a partner in companies or enterprises outsideof Adler during the past five years

The members of the Executive Board may be contacted at the Company’s business address.

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Remuneration, shareholdings, loans, other legal relationships and conflicts of interest

Remuneration

The remuneration of the members of the Executive Board comprises a fixed annual salary and avariable component consisting of a short-term incentive (‘‘STI’’) and a long-term incentive payment(‘‘LTI’’) as well as a one-off special bonus, however Lothar Schafer’s variable component overalland the long-term incentive payments of Jochen Strack and Thomas Wanke are dependent on theIPO being successful, with trading commencing on the regulated market in the Prime Standardsegment of the Frankfurt Stock Exchange.

Lothar Schafer receives an annual fixed salary of c220,000, Thomas Wanke receives an annualfixed salary of c200,000 and Jochen Strack receives an annual fixed salary of c175,000.

Lothar Schafer and Thomas Wanke each receive an STI of 1%, and Jochen Strack an STI of0.6% of earnings from ordinary operations (EBT) in accordance with the certified IFRS incomestatement in the Company’s annual financial statements in excess of c10,000,000 plus provisionsfor Executive Board bonuses, not to exceed c500,000 per annum for Lothar Schafer and ThomasWanke and not to exceed c250,000 per annum for Jochen Strack. The Supervisory Board mayreasonably reduce the STI if it is based on circumstances not reasonably related to the ExecutiveBoard members’ performance or on extraordinary developments. The STI for the past financial yearis due and payable two months after the close of the Annual General Meeting. If a member‘sappointment to the Company’s Executive Board was only for part of the financial year, the STIshall be paid on a pro rata temporis basis.

The LTI is calculated as follows: The members of the Executive Board undertake to subscribe forshares of the Company on the date of listing and to hold these for at least one year from the dateof purchase. Lothar Schafer will undertake to acquire shares at the issue price in an amountequivalent to c500,000; Jochen Strack will undertake to acquire shares at the issue price in anamount equivalent to c50,000 and Thomas Wanke will undertake to acquire shares at the issueprice in an amount of c200,000. For each share of the Company subscribed, the Executive Boardmembers receive five stock appreciation rights (‘‘SAR’’). One SAR grants a claim to paymentcontingent upon the performance of the stock exchange price of the shares; it does not howevergrant an option to acquire a share in the Company. The waiting period for the exercise of SAR isthree years from the issue date. SAR may only be exercised if the closing price of the Company’sstock at the end of the waiting period is at least 30% higher than the issue price. SAR may beexercised after the waiting period expires either in whole or in part within a two-year period(‘‘Exercise Period’’). Upon expiry of the Exercise Period, those SAR which have not beenexercised shall expire. For Lothar Schafer, the LTI is a maximum of c2,000,000, for ThomasWanke a maximum of c1,600,000 and for Jochen Strack a maximum of c800,000.

In the event of a successful initial public offering, the Executive Board members shall each receivea one-off special bonus of c50,000.

In the 2010 financial year, the current members of the Company’s Executive Board receivedremuneration totalling c576 thousand from the Company and/or its subsidiaries and affiliates.

Neither the Company nor any of its subsidiaries has recognised reserves or provisions for pension,retirement or similar benefits paid to Executive Board members currently in office.

The Company has taken out D&O insurance (‘‘D&O’’) for the members of the Executive Board witha deductible in accordance with § 93 (2) sentence 3 AktG (10% of the loss or damage up to 1.5times the fixed annual remuneration) to cover risks arising out of the Executive Board members’professional activities on behalf of the Company (see the section entitled ‘‘Business – Insurance’’).The Company bears all legal defence costs if an insured event occurs. The Company reimbursesthe Executive Board members 50% of their proven expenses for health and long-term careinsurance, albeit not more than the total of the Company’s share of the health and long-term careinsurance premiums owed in the event an employment relationship is deemed to exist under socialsecurity insurance law. The members of the Executive Board are furthermore provided withcompany cars, which may also be used privately.

In satisfaction of the requirements for an exemption from the statutory disclosure duty and contraryto the provisions of the German Corporate Governance Code, the Company’s Annual GeneralMeeting is expected on or before the final day of the Offering Period to resolve not to disclose theremuneration of individual members of the Executive Board paid by the Company in theCompany’s annual and consolidated financial statements in accordance with §§ 285 sentence 1 no.

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9 a sentences 5 to 8, 314 (1) no. 6 a sentences 5 to 8 German Commercial Code(Handelsgesetzbuch, ‘‘HGB’’) for the financial year beginning 1 January 2011 as well as the fourfinancial years thereafter and instead to disclose only the total remuneration of the Executive Boardmembers.

Shareholdings of Executive Board members

The members of the Executive Board currently hold no shares in the Company. The members ofthe Executive Board will undertake to subscribe shares of the Company on the date of listing andhold these for at least one year. The members of the Executive Board do not hold any options tosubscribe for shares of the Company either.

Loans, other legal relationships and conflicts of interest

The Company has not extended the members of the Company’s Executive Board any loans ordrawn on any loans from these.

The service agreements of the members of the Executive Board provide for non-competecovenants for the term of said agreements. In the event Executive Board members’ positions areterminated prematurely, payments to the respective Executive Board member, including ancillarypayments, may not exceed the equivalent of two annual salaries (‘‘Severance Cap’’) and may notremunerate more than the remaining term of office. The Severance Cap is calculated based on thetotal remuneration for the past financial year and the expected total remuneration for the currentfinancial year.

Other than their position as members of a corporate body and the relationships described in thesection entitled ‘‘Related Party Transactions’’, the Executive Board members do not have any legalrelationships with the Company. The Executive Board members have no potential conflicts ofinterest in relation to their obligations toward the Company on the one hand and their personalinterests or obligations on the other. No familial relationships exist between the members of thecorporate bodies.

Jochen Strack was Managing Director of COS Distribution GmbH, Linden, and Managing Directorof its wholly owned subsidiaries, Avitos GmbH, Linden, TOPEDO IT-Handels GmbH, Linden, ELogistics GmbH, Linden, and tiscon Handelsgesellschaft m.b.H., Wiener Neudorf, Austria. In 2009,insolvency proceedings were instituted against the assets of these companies. The insolvencyproceedings in Austria against the assets of Tiscon Handelsgesellschaft m.b.H. have been closed,the remaining insolvency proceedings are still pending. Jochen Strack was fined in his capacity asManaging Director of COS Distribution GmbH approximately c200 by the Federal EmploymentAgency in Gießen (Bundesagentur fur Arbeit Gießen) for breach of COS Distribution GmbH’sreporting duties as the recipient of benefits from the Federal Employment Agency in connectionwith the premature termination of a COS Distribution GmbH employee’s trainee relationship.Otherwise, no member of the Company’s Executive Board has in the last five years been amember of an administrative, management or supervisory body or a member of seniormanagement of any company whose assets were subject to insolvency receivership or liquidationproceedings, or been subject to any public accusations or sanctions by statutory authorities orregulatory authorities (including professional associations). No member of the Executive Board hasever been deemed unfit by a court of law for membership in an administrative, management orsupervisory body of any issuing company or for serving in management or for managing thebusiness of an issuer. Nor has any member of the Company’s Executive Board been convicted inthe last five years of any criminal acts of fraud.

Supervisory Board

Introduction

Pursuant to the Company’s Articles of Association, the Supervisory Board is composed of 12members. Six of these members are elected by the Annual General Meeting and six are electedby the employees in accordance with the provisions of the German Co-determination Act of 1976(Mitbestimmungsgesetz 1976, ‘‘MitbestG’’). Members are elected for the period until the conclusionof the Annual General Meeting that resolves to ratify the actions of the Supervisory Boardmembers for the fourth financial year following commencement of their term of office. The financialyear in which the term of office commences is not included in calculating such period. The AnnualGeneral Meeting may stipulate a shorter term of office for those Supervisory Board memberselected by the shareholders. Re-appointments are permissible.

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Substitutes may also be elected for one or several specific shareholder representatives on theSupervisory Board. They shall become members of the Supervisory Board in an order to bestipulated at the time of election when the shareholder representatives for whom they were electedas substitutes leave the Supervisory Board before their term of office expires and where nosuccessor has been appointed. If a substitute steps in to replace a departing member of theSupervisory Board, the term of office of such substitute shall expire as soon as a successor hasbeen appointed for such departing member or at the latest when the departing member’s remainingterm of office expires. Any subsequent election as a consequence of which the term of office ofthe substitute replacing the departing member expires shall require a majority of 75% of the votescast. If the substitute being replaced by a subsequent election had been appointed for severalspecific Supervisory Board members, his or her position as a substitute member shall be reinstatedand, where several substitute members have been appointed, he or she shall be first in order ofpriority. Supervisory Board members and substitute members may resign their office subject to fourweeks’ notice without showing good cause. The letter of resignation shall be sent to the ExecutiveBoard and the chairman of the Supervisory Board shall be notified thereof.

Following the Annual General Meeting at which all the Supervisory Board members to be electedby the Annual General Meeting have been so elected, a meeting of the Supervisory Board shall beheld which shall not require any special invitation. At such meeting, which shall be chaired by theoldest Supervisory Board member in terms of age, the Supervisory Board shall elect from amongits ranks as specified under § 27 MitbestG the chairman and the deputy chairman of theSupervisory Board for the duration of its term or for a shorter period to be stipulated by it. At suchmeeting, the Supervisory Board may also elect a second deputy chairman by a majority of thevotes cast.

Supervisory Board meetings and adoption of resolutions

As a rule, the Supervisory Board shall meet once every calendar quarter and must hold twomeetings in any given calendar half year. Supervisory Board meetings are convened by thechairman of the Supervisory Board subject to a two-week notice period in writing, by fax or by e-mail. In calculating the notice period, the date of dispatch of the invitation and the date of themeeting shall not be included. In urgent cases, the chairman may reasonably shorten this noticeperiod and convene the meeting orally, by telephone, fax, e-mail or by other customary means oftelecommunication.

Supervisory Board resolutions are generally adopted in the context of meetings. At the direction ofthe Supervisory Board chairman, resolutions may also be adopted orally, by telephone, in writing,by fax, by e-mail or by other customary means of telecommunication, in particular by videoconferencing. The Supervisory Board has quorum if the members have been sent an invitation atthe last known address in writing, by fax or by e-mail and at least half the total of requiredmembers participate in the adoption of the resolution personally, by written proxy voting or byvoting per fax, e-mail or by telephone. Members are also deemed to be participating in theadoption of resolutions when they abstain from voting.

Resolutions of the Supervisory Board shall be adopted by the majority of the votes cast to theextent not otherwise required by law, specifically §§ 27, 29 (2), 31 and 32 MitbestG. The foregoingshall also apply with respect to elections. If a vote results in a tie, and should at least twomembers of the Supervisory Board present at the meeting so request, the item up for resolutionshall be re-submitted for discussion. If a second vote on the item up for resolution ends in a tie,the chairman of the Supervisory Board shall have a second vote in accordance with § 29 (2)MitbestG and § 31 (4) MitbestG. The second vote is governed by the same provisions as thoseapplicable to the chairman’s first vote.

Prior to the end of the 2010 financial year, the Supervisory Board had met four times. In thecurrent financial year, the Supervisory Board has thus far met two times.

Legal position of the Supervisory Board

The Supervisory Board acts in accordance with the relevant statutory provisions, the provisions ofthe Articles of Association and the Supervisory Board’s rules of procedure. In performing its duties,the Supervisory Board must work together with other corporate bodies of the Company on a basisof trust. The Supervisory Board members are not subject to orders or instructions. The SupervisoryBoard members are under a duty to keep confidential and not to disclose to third parties any andall facts, namely business and trade secrets and confidential information of which they become

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aware in the course of their Supervisory Board activities; this obligation shall survive thetermination of their office as Supervisory Board members. The duty of confidentiality applies inparticular to any confidential reports and information received, and particularly the course ofdeliberations, the opinions of individual members of the Supervisory Board as well as otherpersonal statements or comments. Upon expiry of their term of office, Supervisory Board membersshall return any and all confidential documents in their possession to the Company. The foregoingrequirement does not affect any rights of retention.

The Supervisory Board appoints the Executive Board, advises it and supervises its management. Itdecides on management issues where the Executive Board’s rules of procedure or the Articles ofAssociation require the Supervisory Board’s consent or where the Executive Board submitstransactions to the Supervisory Board for its consent. In this respect as well, the Supervisory Boardhas no right to initiate decisions or issue instructions. The Executive Board must report to theSupervisory Board on an ongoing basis on the business policy pursued and any and all ExecutiveBoard measures taken or omitted which may be of material importance to the Company’sprofitability or liquidity, or with respect to which the Supervisory Board or individual membersthereof request an accounting. The Supervisory Board’s duty of supervision also extends tomeasures by the Company’s Executive Board that relate to the management of Adler.

Pursuant to the German Stock Corporation Act, the Supervisory Board represents the Companyvis-a-vis the Executive Board members. It appoints the auditor for the audit of the annual financialstatements and the consolidated financial statements pursuant to §§ 290 et seq. HGB. TheSupervisory Board issues itself rules of procedure.

Binding declarations of intent of the Supervisory Board are issued by the chairman or, in the eventhe is unable to do so, by the deputy chairman.

The Supervisory Board’s authority to amend the Articles of Association extends to editorial changesonly.

Members of the Supervisory Board

The current members of the Company’s Supervisory Board are listed in the following table:

Name Member since

Holger Kowarsch (Chairman) March 2009Angelika Zinner (Deputy Chairman)* March 2008Mona Abu-Nusseira February 2010Majed Abu-Zarur* June 2009Ingrid Dusmann-Schulz* March 2008Corinna Groß* March 2008Georg Linder* March 2008Eduard Regele February 2011Erika Ritter* March 2008Markus Roschel September 2009Markus Stillger March 2011Jorg Ulmschneider February 2010

* Employee representatives

The term of office of all current members of the Supervisory Board ends upon the conclusion ofthe Annual General Meeting resolving on the ratification of the acts of the members of theSupervisory Board for financial year 2012, i.e., at the conclusion of the 2013 Annual GeneralMeeting.

Holger Kowarsch (Chairman)

Holger Kowarsch (born 1969) studied business administration from 1988 to 1994 at Justus-Liebig-Universitat zu Gießen, where he earned a degree in business (Diplom-Kaufmann). From 1995 to1997, he worked at Bakelite AG in central Finance and Controlling, before going on to take aposition as Deputy Sales Manager (stellvertretende Vertriebsleitung) in the Phenolic Resinsdivision. From 1997 to 2003, Holger Kowarsch acted as commercial attorney-in-fact for ZeitlerSitzmobel GmbH & Co. KG, Lichtenau. From 2000 to 2004, he also worked as commercial andtechnical manager with signing authority for Arnstadter Buromobelwerk GmbH & Co. KG. In 2004,Holger Kowarsch worked at Lanzet Bad GmbH and advised DDP Deutsche Depeschendienst

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GmbH in Berlin as well as Missel GmbH. From 2004 to 2005 he was Managing Director atColordruck Pforzheim GmbH & Co. KG. Since 2005, Holger Kowarsch has been Managing Directorof AHS Unternehmensberatung GmbH in Chur, Switzerland. From 2005 to 2008, Holger Kowarschsat on the executive board of Evotape S.p.A. Novara, Italy. From 2006 to 2008, he was VicePresident of Operations at ARQUES Industries AG and from 2006 to 2007 Managing Director ofWolfsheck Betriebs GmbH. From 2006 to 2007, he was Managing Director of BEA Elektrotechnikund Anlagenbau Technische Dienste Lausitz GmbH. From 2007 to 2008, Holger Kowarsch waschairman of the supervisory board of Richard Schops & Co. AG in Vienna. From 2007 to 2008,Holger Kowarsch was Managing Director of Camping Outlet GmbH in Bielefeld. From 2007 to2008, Holger Kowarsch was a member of the executive board of ARQUES Austria Invest AG inVienna. Since 2008, he has worked in consulting at bluO International Affiliates Ltd. in Munich.From 2009 to 2010, Holger Kowarsch acted as Managing Director at Evotape Packaging SRL inNovara and at Evotape Masking SRL in Novara. From 2009 to 2010, Holger Kowarsch also sat onthe executive board of Evotape SPA in Novara and on the supervisory board of Zugspitze AG inMunich. Since 2009, Holger Kowarsch has been a member of the supervisory board of AlzchemTrostberg GmbH in Trostberg and since 2010 deputy chairman of the supervisory board of ZIPWarenhandels AG.

Beyond the aforementioned positions and his office as a member of the Company’s SupervisoryBoard, Holger Kowarsch has not held any other positions as a member of a management,administrative or supervisory body or a partner in companies or enterprises outside of Adler duringthe past five years.

Angelika Zinner

Angelika Zinner (born 1949) completed training as a retail saleswoman (Einzelhandelskauffrau) atAppelrath/Kupper in Aachen from 1964 to 1967. From 1967 to 1970, she worked as a saleswomanat Bambino-Moden in Aachen and from 1970 to 1972 as a saleswoman at Kaufhof AG in Aachen.After taking time out to raise a family, Angelika Zinner returned to the workforce and has beenworking at the Company as a saleswoman/consultant and department manager since 1987. Shehas been chairman of the Company’s central works council since 1999. From 2006 to 2010,Angelika Zinner was chairman of the Company’s Group works council. She is currently the deputychairman of the Economic Committee and a member of the Bargaining Committee(Tarifkommission).

In addition to her office as deputy chairman of the Company’s Supervisory Board, Angelika Zinnerwas also a member of the supervisory board of Metro AG from 2008 to 2009. Beyond theaforementioned, Angelika Zinner has not held any other positions as a member of a management,administrative or supervisory body or a partner in companies or enterprises outside of Adler duringthe past five years.

Mona Abu-Nusseira

Mona Abu-Nusseira (born 1978), holds a degree in business law (Diplom-Wirtschaftsjuristin). From2004 to 2005, she worked as a women’s rights development aid worker for combating femalegenital mutilation (FGM) at the Mutawinat Organisation in the Sudan. From 2005 to 2008, MonaAbu-Nusseira worked in Corporate Project Management/M&A at Scout 24 Holding GmbH. Since2008, she has worked as Principal at bluO International Affiliates in M&A.

In addition to her office as a member of the Company’s Supervisory Board, Mona Abu-Nusseirahas also been a member of the supervisory board of AlzChem Trostberg GmbH since February2010. Beyond the aforementioned, Mona Abu-Nusseira has not held any other positions as amember of a management, administrative or supervisory body or a partner in companies orenterprises outside of Adler during the past five years.

Majed Abu-Zarur

Majed Abu-Zarur (born 1957) earned a Masters degree (Magister) in Russian studies fromSimferopol State University in the former Soviet Union in 1981. From 1986 to 1988, he was afreelance employee at Intersprachschule in Mannheim. From 1989 to 1992, Majed Abu-Zarur wasan administrative assistant (kaufmannischer Angestellte) at Geber & Marder in Mannheim. Since1992, Majed Abu-Zarur has worked as an Information/Cashier/Sales Consultant (Fachberater Info,Kasse und Verkauf) at Adler Modemarkt in Mannheim. He is a member of the Company’s centralworks council, the Trade Union Works Committee (Gewerkschaftlicher Betriebsausschuss (GBA)),

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the Economic Committee and the Bargaining Committee. Majed Abu-Zarur is also chairman of theworks council at the Adler store in Mannheim.

Beyond his office as member of the Company’s Supervisory Board, Majed Abu-Zarur has not heldany other positions as a member of a management, administrative or supervisory body or a partnerin companies or enterprises outside of Adler during the past five years.

Ingrid Dusmann-Schulz

Ingrid Dusmann-Schulz (born 1956) studied social sciences, German and Education at theUniversity of Munster, completing her degree in education by passing the 1st state exam(secondary levels I and II) in 1982 and the 2nd state exam (secondary levels I and II) in 1985.From 1985 to 1988 she worked as an advisor and instructor at the Educational Centre for RetailTrade (Bildungszentrum des Einzelhandels). Since 1988, she has worked as Head of Training(Ausbildungsleiterin) and Trainer for Human Resources Development (Trainerin furPersonalentwicklung) at the Company.

Beyond her office as a member of the Company’s Supervisory Board, Ingrid Dusmann-Schulz hasnot held any other positions as a member of a management, administrative or supervisory body ora partner in companies or enterprises outside of Adler during the past five years.

Corinna Groß

Corinna Groß (born 1968) completed her training as a Window Dresser (Schauwerbegestalterin) atHorten in Braunschweig from 1986 to 1989 where she then worked as a Window Dresser from1989 to 1993. From 1996 to 2006, Corinna Groß was trade union secretary for ver.di, the Germantrade union for the services sector (vereinte Dienstleistungsgewerkschaft, ‘‘ver.di’’). From 1993 to1996, she worked as an administrative assistant (Verwaltungsangestellte) at the German Trade,Banks and Insurances Union (Gewerkschaft Handel, Banken und Versicherungen, ‘‘HBV’’). Since2007 she has been District Managing Director at ver.di.

Beyond her office as a member of the Company’s Supervisory Board, Corinna Groß has not heldany other positions as a member of a management, administrative or supervisory body or a partnerin companies or enterprises outside of Adler during the past five years.

Georg Linder

Georg Linder (born 1954) completed his studies in Wurzburg in 1980 with a degree in businessadministration (Diplom-Betriebswirt) and has been working for the Company since then. From 1980to 1988, Georg Linder worked as Deputy Manager of Controlling, after which he was promoted toDepartment Manager; since 2000 he has been Divisional Manager of Purchasing, Goods Trackingand Customs.

In addition to his office as member of the Supervisory Board of the Company, which he has heldsince 1994, and his activity as executive staff representative since 2003, Georg Linder has been amember of the Representatives Assembly (Vertreterversammlung) of Raiffeisenbank AschaffenburgeG since 1999 and since 2005 company representative of the Aschaffenburg Chamber of Industryand Commerce (IHK) on the Foreign Trade Committee (Außenwirtschaftsausschuss) of the GermanAssociation of German Chambers of Industry and Commerce (Deutscher Industrie- undHandelskammertag, ‘‘DIHK’’) in Berlin. Beyond the aforementioned, Georg Linder has not held anyother positions as a member of a management, administrative or supervisory body or a partner incompanies or enterprises outside of Adler during the past five years.

Eduard Regele

Eduard Regele (born 1968) completed his training as Assistant Tax Specialist (Steuerfachgehilfe)from 1986 to 1989 to become a Specialist in Tax and Business Consulting Professions(Fachgehilfe in steuer- und wirtschaftsberatenden Berufen). Thereafter, he worked initially as anAssistant Tax Specialist until 1997 and later also as an accountant (Bilanzbuchhalter (IHK)) withtax consultants in Donauworth, Dillingen and Augsburg. During this time, he completed his trainingat the German Chamber of Industry and Commerce to become a certified accountant. He thenwent on to study business administration (Betriebswirt (VWA)) at the Academy of Business andManagement in Schwaben (Verwaltungs- und Wirtschaftsakademie Schwaben). From 1997 to 2001,he worked as an accountant at Alterum Treuhand- und Steuerberatungsgesellschaft mbH (BTVUnternehmensgruppe) in Munich. In 2001, he was Head of Finance and Controlling at WebmotionAG in Pullach. From 2001 to 2002, he was Director of Controlling at TUXIA GmbH in Augsburg.From 2002 to 2003, Eduard Regele was Director of the Group Finance Department of ARQUES

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Industries AG. From 2004 to 2006, he worked as CFO of the Schierholz Translift Group in Kriens,Switzerland. In pursuit of further training in IAS/IFRS and US-GAAP, he earned a Certificate inInternational Accounting (CINA) in 2004. In 2006, Eduard Regele was Director for Special Tasks(Director fur Sonderaufgaben) at ARQUES Industries AG. From 2006 to 2010, he was also Directorof the M&A-Department at ARQUES Industries AG. Since 2010, Eduard Regele has been theHead of Capital Markets & Corporate Acquisitions (Leiter Kapitalmarkt & Unternehmensverkaufe) atbluO International Affiliates.

In addition to his office as member of the Company’s Supervisory Board, Eduard Regele has heldin the last five years and to the extent not otherwise indicated continues to hold the followingpositions as a member of a management, administrative or supervisory body or a partner incompanies and enterprises outside Adler:

* Member of the board of directors of Schierholz Translift Schweiz AG in Kriens, Switzerland(2005 to 2006);

* member of the board of directors of Schierholz Translift Global Manufacturing and FinanceAG in Zug, Switzerland (since 2005);

* Managing Director of Schierholz Translift Holding GmbH in Starnberg, Germany (2005 to2006);

* Managing Director of AMODA SPV GmbH in Haibach (since 2011);

* Managing Director of AMODA Schuhmoden GmbH in Haibach (since 2011);

* Managing Director of AMODA Verwaltungs GmbH in Haibach (since 2011);

* Managing Director of AMODA Treasury Verwaltungs GmbH in Haibach (since 2011);

* Managing Director of AMODA SPV Verwaltungs GmbH in Haibach (since 2011).

Erika Ritter

Erika Ritter (born 1955) studied at the Halle/Saale Pedagogical University (PadagogischeHochschule in Halle/Saale) from 1974 to 1978, earning a teaching degree in chemistry andmathematics in 1978 (Diplom-Lehrerin fur Chemie und Mathematik). From 1978 to 1982, shetaught chemistry and mathematics at Lessing-Oberschule in Halle/Saale. From 1984 to 1987, ErikaRitter was a full-time trade unionist at the Free German Trade Union Federation (Freier DeutscherGewerkschaftsbund (FDGB)) in Berlin-Marzahn and from 1987 to 1990 studied social sciences(Diplom-Gesellschaftswissenschaftlerin) at the FDBG Academy (Gewerkschaftshochschule) inBernau. Since 1990, Erika Ritter has worked as a full-time trade unionist at HBV, or ver.di (sinceHBV merged with various other unions into ver.di in 2001). Since 2006 she has held the positionof Regional Section Head, Commerce, ver.di Berlin-Brandenburg.

In addition to her office as member of the Supervisory Board of the Company, Erika Ritter hasheld in the last five years and to the extent not otherwise indicated continues to hold the followingpositions as a member of a management, administrative or supervisory body or a partner incompanies and enterprises outside Adler:

* Member of the supervisory board and works council of extra Verbrauchermarkte GmbH (2004– 2008);

* Member of the supervisory board of Otto Reichelt GmbH (since 2008).

Markus Roschel

Markus Roschel (born 1968) studied business administration (Diplom-Betriebswirt FH), specialisingin marketing, at the Saarland University of Applied Sciences (Fachhochschule des Saarlandes)from 1987 to 1990. From 1990 to 1992, Markus Roschel worked as District Manager (Bezirksleiter)for ALDI GmbH & Co. KG at the Morfelden-Walldorf and Bingen locations. From 1992 to 1993, hewas Sales Manager (Verkaufsleiter) at Norma SARL in Avignon, France. From 1993 to 1997, hewas Sales Manager at ALDI Marche SARL Paris Nord, France. From 1997 to 2007, MarkusRoschel worked at PMD Modenhandels GmbH, first as Sales Director for Germany, Austria andPoland, and then as Managing Director at Pimkie and XANAKA for Germany, Austria and Poland,and from 2004 to 2007, as Managing Director at Pimkie Europe North East. From 2006 to 2007,he also functioned as CEO of Pimkie Invest AG. From 2007 to 2008, he was Managing Director ofBonita Holding GmbH. From 2008 to 2009, Markus Roschel was self-employed as a corporateconsultant. From 2009 until 30 December 2010, he was also Managing Director of Adler AssetGmbH (formerly ‘‘F.W. Woolworth Co. Ges. m.b.H’’), which has been part of the Adler Group since

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31 December 2010. Since 2009, Markus Roschel has worked as Investment Manager at bluOInternational Affiliates Ltd. He has also been a member of the executive board of ZiPWarenhandels AG since 2010.

In addition to his office as member of the Supervisory Board of the Company, Markus Roschel hasheld in the last five years and to the extent not otherwise indicated continues to hold the followingpositions as a member of a management, administrative or supervisory body or a partner incompanies and enterprises outside Adler:

* President at MODE DIFFUSION SYSTEM – M.D.S. S.A. in Switzerland (2006 to 2007);

* Member of the executive board of PIMINVEST AG in Germany (2005 to 2007);

* Managing Director of PIMKIE MODE CZECH S.R.O. in the Czech Republic (2006 to 2007);

* Member of the executive board of PIMKIE MODE POLSKA Sp. z.o.o. in Poland (2006 to2007);

* Managing Director of PIMKIE MODE SLOVAKIA S.R.O. in Slovakia (2006 to 2007);

* Managing Director of PMD MODEN HANDELS GmbH in Germany (2005 to 2007).

Markus Stillger

Markus Stillger (born 1962) studied economics from 1983 to 1986 at Justus-Liebig University inGießen. He has worked in the financial services sector since 1986. Markus Stillger has also beenthe managing partner of Stillger & Stahl Vermogensverwaltung GbR since 1996, and commercialattorney-in-fact (Prokurist) (CFO) of ABID Senioren Immobilien GmbH since 1999. Since 2003 hehas also been the managing director (CEO) of MB Fund Advisory GmbH, and since 2010 themanaging director (CEO) of STIKMA GmbH.

In addition to his office as member of the Supervisory Board of the Company and theaforementioned offices, Markus Stillger has held in the last five years and to the extent nototherwise indicated continues to hold the following positions as a member of a management,administrative or supervisory body or a partner in companies and enterprises outside Adler:

* Member of the supervisory board of Ex-Oriente Lux AG in Reutlingen, Germany (since 2008);

* Chairman of the supervisory board of Keyreus AG in Munich, Germany (since 2009);

* Member of the supervisory board of Agrarius AG in Bad Homburg, Germany (since 2009).

Jorg Ulmschneider

Jorg Ulmschneider (born 1944) completed training in textiles wholesale and foreign trade from 1959to 1962. From 1969 to 1972, he studied business administration (Diplom-Betriebswirt) atSaarbrucken University for Business and Applied Sciences (Fachhochschule fur Wirtschaft inSaarbrucken). From 1959 to 1963, he worked at the textiles wholesaler Arnold Becker. From 1963to 1966, Jorg Ulmschneider completed his military training with the German air force. From 1966 to1972, he was Managing Director for textiles wholesale at Arnold Becker Forbach in France. From1972 to 1983, Jorg Ulmschneider was Managing Director at Mode & Textilgroßhandel Dany inPaderborn. From 1977 to 1983, he was Managing Director at Modekaufhaus Dany. From 1983 to1998, Jorg Ulmschneider worked as Head of Purchasing for Textiles/Fashion & Hardware atGlobus in St. Wendel. From 1998 to 2000, he was CEO at Globus Lebensmittel & Nonfood Textilin Prague, Czech Republic, and from 2000 to 2005 CEO at DWW Deutsche Woolworth HoldingGmbH in Frankfurt. Since 2005, Jorg Ulmschneider has worked as a self-employed corporateconsultant for large retail establishment issues. In 2009, he worked for bluO International AffiliatesLimited on the restructuring of the Company’s textiles purchasing.

In addition to his office as member of the Company’s Supervisory Board, Jorg Ulmschneider hasalso been Managing Director at New Connections corporate consultants since 2006. Beyond theaforementioned, Jorg Ulmschneider has not held any other positions as a member of amanagement, administrative or supervisory body or a partner in companies or enterprises outsideof the Adler Group during the past five years.

Other than the aforementioned cases, the members of the Company’s Supervisory Board are notcurrently and have not in the last five years been members of administrative, management orsupervisory bodies or partners in companies and enterprises outside Adler.

The members of the Supervisory Board may be contacted at the Company’s business address.

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Supervisory Board committees

The Supervisory Board has created from among its ranks a Personnel Committee, an AuditCommittee and a Nomination Committee as well as a Committee in accordance with § 27 (3)MitbestG.

The Personnel Committee consists of four members. The chairman of the Supervisory Board andthe first deputy chairman are members of the Personnel Committee by virtue of their respectivefunctions. The Supervisory Board elects two additional members, one shareholder representativeand one employee representative. The chairman of the Supervisory Board also functions as thechairman of the Personnel Committee. The Personnel Committee is responsible for preparing theSupervisory Board’s decisions regarding personnel issues. In the Supervisory Board’s stead, thePersonnel Committee resolves on (i) other legal transactions vis-a-vis and with Executive Boardmembers (§ 112 AktG), as well as the consent to transactions valued at more than c50,000between the Company or one of its affiliates on the one hand and an Executive Board member orparty related to the Executive Board member on the other; (ii) permission with respect to otheractivities of any Executive Board member in accordance with § 88 AktG (non-compete covenant)as well as consent to other ancillary activities, in particular positions on supervisory boards andpositions on comparable supervisory bodies at companies outside the Group; (iii) the granting ofloans to those persons specified in §§ 89, 115 AktG, e.g. commercial attorneys-in-fact andmembers of the Supervisory Board; (iv) consent to agreements with members of the SupervisoryBoard under § 114 AktG; (v) consent to Executive Board decisions on the scope of share rightsand the terms and conditions of share issues in the context of capital increases from authorisedcapital or based on a resolution by the Annual General Meeting; (vi) consent to Executive Boarddecisions on the scope of rights arising out of shares, convertible or warrant-linked bonds as wellas the terms and conditions of their issue in the context of capital increases from authorisedcapital; (vii) consent to Executive Board decisions on the sale or redemption of treasury shares aswell as the terms and conditions of the issue or redemption of treasury shares. The PersonnelCommittee also regularly discusses and advises on issues of long-term succession planning for theExecutive Board, taking into account corporate plans for executive staffing and also with a view tomaintaining diversity. Any conflicts of interest on the part of members of the Executive Board orthe Supervisory Board are disclosed to the Personnel Committee rather than the SupervisoryBoard. The chairman of the committee is responsible taking receipt of statements and declarations.

The Audit Committee consists of four members who are elected by the Supervisory Board fromamong its ranks. The Audit Committee prepares the decisions of the Supervisory Board withrespect to the adoption of the annual financial statements and the approval of the consolidatedfinancial statements. To this end, the Audit Committee is charged with conducting a preliminaryaudit of the annual financial statements, the consolidated financial statements, the condensedmanagement report and the proposal for the appropriation of profits. The Audit Committee decideson the agreement with the auditor (in particular issuing the audit engagement, establishing theareas of focus for the audit and the fee agreement). It takes appropriate action in order todetermine and monitor the auditor’s independence. The Audit Committee also assists theSupervisory Board in monitoring management and in this regard deals in particular with riskmanagement and compliance issues.

In the event of a stock exchange listing, a Nomination Committee will be created consisting ofthree members. The chairman of the Supervisory Board is a member of the Nomination Committeeby virtue of his function. The shareholder representatives of the Supervisory Board elect fromamong their ranks two additional members. The chairman of the Supervisory Board also functionsas the chairman of the Nomination Committee. The Nomination Committee is charged withrecommending suitable candidates to the Supervisory Board for proposals to elect shareholderrepresentatives on the Supervisory Board by the Annual General Meeting. In so doing, theNomination Committee shall take into account the requirements defined in § 2 (1), (3) and (4) withrespect to the composition of the Supervisory Board and the objectives defined by the SupervisoryBoard under § 2 (2).

The Supervisory Board also appointed a Committee in accordance with § 27 (3) MitbestG whichperforms the duties assigned to it by law.

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Remuneration, shareholdings, loans, other legal relationships and conflicts of interest

Remuneration

The members of the Supervisory Board receive remuneration in the amount of c10,000 for theiractivities, payable following the conclusion of a given financial year. The chairman of theSupervisory Board receives double this amount and the deputy chairman of the Supervisory Boardreceives 1.5 times this amount. For each Supervisory Board committee of which they are amember, they receive an additional 10%, provided that the respective committee has met at leasttwice in the respective financial year. Excepted from this provision on remuneration is themembership in the Mediation Committee pursuant to § 27 (3) MitbestG. Supervisory Boardmembers who have not been a member or chairman of the Supervisory Board or a committee foran entire financial year shall be remunerated on a pro rata temporis basis; this shall apply withrespect to the LTI remuneration in accordance with the assessment period. Remuneration shall bedue and payable at the end of the Annual General Meeting resolving on the ratification of the actsof the Supervisory Board. Supervisory Board members shall also receive c300 for eachSupervisory Board meeting attended. The chairman shall receive double this amount and thedeputy chairman shall receive 1.5 times this amount. Members of the Supervisory Board shall alsobe reimbursed for all expenses as well as VAT payable on their remuneration and out-of-pocketexpenses. The Annual General Meeting shall decide by resolution on other methods ofremuneration for the members of the Supervisory Board and benefits of a remunerative nature.

As a result of the shareholder representatives waiving their remuneration, the total remuneration ofthe members of the Supervisory Board for meetings attended was c40 thousand in financial year2010.

The Company has taken out D&O insurance for the members of the Supervisory Board at its owncost, which provides for a deductible that is equivalent to the deductible required by law forSupervisory Board members. The Company bears all legal defence costs if an insured eventoccurs.

Neither the Company nor any of its subsidiaries has recognised reserves or provisions for pension,retirement or similar benefits paid to Supervisory Board members currently in office.

Shareholdings of Supervisory Board members

The members of the Supervisory Board do not hold any shares of the Company. The members ofthe Supervisory Board do not hold any options to subscribe for shares of the Company.

Loans, other legal relationships and conflicts of interest

Companies of Adler have not granted the members of the Company’s Supervisory Board any loansor drawn on loans from these members.

Other than their positions as members of a corporate body and the relationships described aboveand in the section entitled ‘‘Related Party Transactions’’, the Supervisory Board members do nothave any other legal relationships with the Company. Supervisory Board members HolgerKowarsch, Mona Abu-Nusseira, Eduard Regele, Markus Roschel and Jorg Ulmschneider haveprofessional or contractual ties with companies that are affiliates of the Selling Shareholder. Theyare therefore also committed to the interests of these companies. The interests of these companiesmay not be identical to those of the Company, which could give rise to conflicts of interest.

Apart from the foregoing, the members of the Supervisory Board do not have any potentialconflicts of interest in relation to their obligations toward the Company on the one hand and theirpersonal interests or obligations on the other. No familial relationships exist between the respectivemembers of the corporate bodies.

There are no services agreements between the Company or its subsidiaries on the one hand andone or several Supervisory Board members on the other that provide for concessions in the eventof the termination of the services agreement.

Eduard Regele was a member of the board of directors of Schierholz Translift Schweiz AG, Kriens/Switzerland and of Schierholz Translift Global Manufacturing and Finance AG, Zug/Switzerland. On6 June 2008, insolvency proceedings were commenced against Schierholz Translift Schweiz AGand this entity was deleted from the commercial register. Schierholz Translift Global Manufacturingand Finance AG was dissolved by shareholder resolution dated 3 July 2009. The dissolution of thiscompany has not yet been entered in the commercial register of the Canton of Zug. With theexception of Eduard Regele, no member of the Company’s Supervisory Board has in the last five

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years been a member of an administrative, management or supervisory body or a member ofsenior management of any company whose assets were subject to insolvency receivership orliquidation proceedings. No member of the Company’s Supervisory Board has been subject to anypublic accusations or sanctions by statutory authorities or regulatory authorities (includingprofessional associations). No member of the Supervisory Board has ever been deemed unfit bycourt of law for membership on an administrative, management or supervisory body of any issuingcompany or for serving in management or for managing the business of an issuer, or convicted offraud offences in the last five years.

Annual General Meeting

Introduction

The Annual General Meeting is the corporate body in which the shareholders are able to exercisetheir rights within the Company. Pursuant to the Company’s Articles of Association, the AnnualGeneral Meeting is held at the Company’s registered office, or at a location within 100 km of theCompany’s registered office, or in a city in Germany with a population of at least 50,000 residents,or at the domicile of a German stock exchange to which the shares of the Company are admittedto official trading. The Annual General Meeting is held within the first eight months of a givenfinancial year. Moreover, apart from those cases stipulated by law and in the Articles ofAssociation, an Annual General Meeting must be convened if the interests of the Company sorequire. Annual general meetings may be convened by the Executive Board or by the SupervisoryBoard in those cases prescribed by law. Furthermore, shareholders whose shares collectivelyrepresent at least 5% of the Company’s share capital may request that an Annual General Meetingbe convened or, subject to certain requirements, may be authorised by a court of competentjurisdiction to independently convene an Annual General Meeting. Unless a shorter period ispermitted by law, notice of the Annual General Meeting must be given at least 30 days prior to thedate of the meeting and must be published in the electronic Federal Gazette (Bundesanzeiger).The date of publication and the date upon which the registration period expires shall not beincluded in calculating such period.

Those shareholders who register in a timely manner prior to the Annual General Meeting areentitled to attend the Annual General Meeting and exercise their voting rights. The Company mustreceive the registration at the address specified in the notice of meeting in text form (§ 126b BGB)in German or in English at least six days prior to the date of the Annual General Meeting (finalregistration date). The date of the Annual General Meeting and the date of receipt are not countedin calculating this deadline. Shareholders are further required to provide proof of their entitlement toattend the Annual General Meeting and exercise their voting rights. This requires the submission ofproof of shareholding issued in text form (§ 126b BGB) in German or in English by theshareholder’s account bank or financial services institution. Such proof of shareholding must relateto the date stipulated by law (§ 123 (3) sentence 3 AktG) prior to the meeting (record date) andmust be received at the address stated in the notice of meeting at least six days prior to theAnnual General Meeting (final date for proof of entitlement). If such proof is not provided or notprovided in the proper form, the Company may deny the shareholder admission. If sharecertificates have not been issued, the notice of the Annual General Meeting must specify themanner in which shareholders are required to prove their entitlement to attend the Annual GeneralMeeting and exercise their voting rights.

The Annual General Meeting shall be chaired by the chairman of the Supervisory Board. If thechairman is absent or otherwise unable to act, a member of the Supervisory Board elected by themajority of shareholder representatives on the Supervisory Board shall chair the meeting. If nomember of the Supervisory Board agrees to chair the meeting, the notary appointed to notarise theproceedings shall open the meeting and have it elect a chairman. The chairman shall lead thediscussion and determine the sequence in which the items on the agenda are discussed as well asthe form and manner of voting.

Shareholders may arrange to be represented by proxy at the Annual General Meeting. The proxymust be granted in text form, unless the Articles of Association or the notice of the Annual GeneralMeeting stipulates a less stringent form.

Adoption of resolutions

The resolutions of the Annual General Meeting are adopted by a simple majority of votes cast andto the extent a capital majority is required, by a simple majority of the share capital represented at

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the adoption of the relevant resolution, unless a greater majority is mandated by law or the Articlesof Association. Pursuant to mandatory statutory provisions, capital increases excludingshareholders’ pre-emptive subscription rights, capital reductions, the dissolution, re-organisation ormerger of the Company, the transfer of the Company’s entire assets and consent to inter-companyagreements within the meaning of § 291 et seq. AktG, in particular, require a majority of no lessthan 75% of the share capital represented at the adoption of the relevant resolution. If a simplemajority is not achieved during the first round of voting, a second vote will be held between thetwo or more candidates receiving the highest numbers of votes. If only one person receives thehighest number of votes the second round of voting will be between this person and the person(s)receiving the second highest number of votes. In the second round of voting, the highest numberof votes will be deciding. In the event of a tie, the chairman shall decide by drawing lots. TheExecutive Board is authorised to stipulate that shareholders may cast their votes without having toattend the meeting by written or electronic ballot.

Each no-par value share carries one vote at the Annual General Meeting. Voting rights may beexercised by proxies. The grant of proxy, its revocation and the proof of proxy vis-a-vis theCompany must be provided in text form. The notice of meeting may stipulate a less stringent form.The foregoing shall not affect § 135 AktG. If a shareholder appoints more than one person asproxy, the Company may reject one or more of these. The Company may appoint one or moreproxies to exercise the shareholders’ rights in accordance with their instructions. The details,specifically with regard to the form and deadlines for the grant and revocation of proxies shall bepublished together with the notice of the respective Annual General Meeting.

Every shareholder has the right to speak and ask questions at the Annual General Meeting. Thisright may be subject to various restrictions, particularly with regard to the Company’s interest inconfidentiality and proper and expeditious conduct of the Annual General Meeting. The chairmanstipulates the sequence of speakers and the agenda items addressed and to the extent permittedby law, decides on whether to consolidate related items up for resolution under a single item forvoting and may reasonably restrict the time a shareholder has to exercise his or her right to speakand ask questions for the entire course of the meeting, for individual items on the agenda and forindividual speakers and may do so either at the start or during the course of the Annual GeneralMeeting and to the extent necessary for due and proper conduct of the Annual General Meetingand may order the debate to be closed. Subject to certain requirements governed by the GermanStock Corporation Act, shareholders and members of the Executive Board and the SupervisoryBoard may appeal resolutions of the Annual General Meeting before the regional court ofcompetent jurisdiction on various legal aspects or seek a declaratory judgment invalidating therelevant resolution.

Competencies

The Annual General Meeting resolves upon the appropriation of the Company’s net retained profitand the ratification of the actions of the Executive Board and Supervisory Board for the respectivefinancial year ended prior to the Annual General Meeting. In addition, the Annual General Meetingappoints the Company’s auditor for the financial statements for the respective current financialyear.

The Annual General Meeting adopts the Company’s annual financial statements in the event theExecutive Board and Supervisory Board have not already done so. It elects the Supervisory Boardand makes decisions, in particular on the following issues:

* measures involving the raising of capital and capital decreases;

* amendments to the Articles of Association;

* measures involving legal re-structurings such as mergers, spin-offs and legal re-organisations;

* transfer of the Company’s entire assets;

* integration of a Company; and

* execution or amendment of inter-company agreements (in particular control and profit andloss transfer agreements).

Post-formation acquisition (Nachgrundung)

Pursuant to German stock corporation law, agreements by a stock corporation with founders orshareholders holding more than 10% of the relevant corporation’s share capital pursuant to whichthe stock corporation is to acquire current assets, assets to be created or other assets in

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consideration for an amount exceeding 10% of the share capital and which are entered into duringthe first two years following recording of the company in the commercial register, enter into effectonly with the consent of the annual general meeting and upon recording in the commercial register(§ 52 AktG). In the absence of the annual general meeting’s consent or recording in thecommercial register, legal acts in performance of such agreements are also invalid. However thisdoes not apply if the assets are acquired in the ordinary course of business at the relevant stockcorporation, in the context of compulsory levy of execution or on the stock exchange.

An agreement subject to the foregoing rules must be executed in writing unless another form isprescribed. The agreement must be reviewed by the Supervisory Board, which must submit awritten report on the review to the annual general meeting prior to adoption of any resolution by it.In addition, before the annual general meeting adopts any resolution, a review must be conductedby one or more company formation auditors.

The resolution by the annual general meeting requires a majority of at least 75% of the sharecapital represented upon adoption of the resolution. If the Agreement is concluded in the first yearfollowing recording of the stock corporation in the commercial register, the shares of the approvingmajority must represent no less than 25% of the total share capital of the stock corporation.

The Company was formed by re-organisation of Adler Modemarkte GmbH and was entered in thecommercial register of the Local Court of Aschaffenburg on 17 March 2011 in the legal form of aGerman stock corporation (Aktiengesellschaft). Agreements entered into by the Company prior to17 March 2013 with the Selling Shareholder or with shareholders whose interest in the sharecapital exceeds 10% and pursuant to which the Company has acquired or is to acquire currentassets, assets to be created or other assets for compensation exceeding 10% of the share capitalmay therefore be subject to post-formation acquisition rules.

Corporate Governance

The ‘‘Government Commission of the German Corporate Governance Code’’(Regierungskommission Deutscher Corporate Governance Kodex) appointed by the GermanFederal Minister of Justice in September 2001 approved on 26 February 2002 the GermanCorporate Governance Code (‘‘Code’’) and last adopted various amendments to the Code on 26May 2010. The Code makes recommendations and suggestions for the management andsupervision of German listed companies based on internationally and nationally accepted standardsfor good and responsible corporate management. The Code is intended to make the Germancorporate governance system transparent and comprehensible. The Code includesrecommendations (‘‘Shall Provisions’’) and suggestions in (‘‘Should/Can Provisions’’) oncorporate governance in relation to shareholders and the annual general meeting, the executiveboard and supervisory board, transparency, accounting and auditing. The Code may be accessedat www.corporate-governance-code.de.

There is no duty to comply with the recommendations or suggestions in the Code. Stockcorporation law merely requires that the executive board and the supervisory board of a listedcompany submit an annual declaration stating either that the recommendations of the Code havebeen and are being complied with, or stating which of those recommendations have not been andare not being applied. The declaration is to be made accessible to shareholders on a permanentbasis. It is permissible to deviate from the suggestions contained in the Code without disclosure.

The Company’s Executive Board and Supervisory Board have supported the Code’s principle ofgood and responsible corporate management. As, until now, the Company was not a publicly listedcompany and the Code was therefore not applicable to it, the Company has in the past refrainedand up until the date of this Offering Memorandum will refrain from publishing a declaration ofcompliance. Nor did it or does it comply with the Code’s recommendations and suggestions, sincethis did not seem expedient in light of the Company’s size and legal structure.

After the initial public offering, the Company intends to comply with the recommendations of theGerman Corporate Governance Code, as amended, subject to the following exceptions:

* No disclosure of individual Executive Board members’ remuneration (4.2.4): TheCompany’s Annual General Meeting is expected to resolve on or before the final day of theOffering Period that it will refrain from disclosing individual Executive Board members’remuneration. The Company believes that disclosing the individual remuneration could resultin it being forced to adjust Executive Board remuneration levels.

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* Composition of the Supervisory Board (5.4.1(2)): The Company’s Supervisory Board hasnot published any concrete objectives with respect to the Supervisory Board’s composition.The Supervisory Board endeavours to ensure that its members have a variety ofcomplementary professional experience and abilities. It is also intended to continue to havewomen, who currently make up 40% of the members, fairly represented on the SupervisoryBoard. In the Supervisory Board’s view, establishing concrete objectives would, however,severely limit the board’s flexibility when it comes to finding candidates with the necessaryexperience and competency. For the same reason, the Company has decided not to establishany age limit for members of the Supervisory Board.

* Supervisory Board remuneration (5.4.6(2)): The members of the Supervisory Board do notreceive performance-based remuneration. The Company believes that remunerating membersof the Supervisory Board based on performance could create the wrong incentives that wouldrun counter to the Supervisory Board’s supervisory and advisory function.

* Period for publishing the consolidated financial statements and interim reports (7.1.2):The Company will have its consolidated and interim financial statements published within thetime periods stipulated by law. The Company aims to comply with the time periods stipulatedby the German Corporate Governance Code, however, it will not be able to achieve this goalduring the first year following the initial listing due to organisational restructuring.

The Company intends to submit a corresponding declaration of compliance in accordance with §161 AktG for the current financial year and ensure that this is made accessible on a permanentbasis.

Management participation

The members of the Executive Board undertake to subscribe for shares of the Company on thedate of listing and to hold these for at least one year from the date of purchase. Lothar Schaferwill undertake to acquire shares at the issue price in an amount equivalent to c500,000; JochenStrack will undertake to acquire shares at the issue price in an amount equivalent to c50,000 andThomas Wanke will undertake to acquire shares at the issue price in an amount of c200,000. Foreach share of the Company subscribed, the Executive Board members will receive five stockappreciation rights (‘‘SAR’’). One SAR grants a claim to payment contingent upon the performanceof the stock exchange price of the shares; it does not however grant an option to acquire a sharein the Company. The waiting period for the exercise of SAR is three years from the issue date.SAR may only be exercised if the closing price of the Company’s stock at the end of the waitingperiod is at least 30% higher than the issue price. SAR may be exercised after the waiting periodexpires either in whole or in part within a two-year period (‘‘Exercise Period’’). Upon expiry of theExercise Period, those SAR which have not been exercised shall expire. For Lothar Schafer, theLTI is a maximum of c2,000,000, for Thomas Wanke a maximum of c1,600,000 and for JochenStrack a maximum of c800,000.

Employees

Overview

The following table provides an overview of the average total number of employees at Adler in the2008, 2009 and 2010 financial years as well as at 31 March 2011:

Number of employees(period average)

Financial year2008

Financial year2009 incl.continuedactivities

Financial year2009

continuedactivities only

Financial year2010

3 months asat 31 March

2011

(audited) (audited) (audited) (audited) (unaudited)

Managers ..................... 157 155 150 161 175Salaried employees ...... 1,249 1,001 778 706 701Part-time workers ......... 4,857 3,767 3,584 3,098 2,959Trainees ....................... 228 200 190 209 240

6,491 5,123 4,702 4,174 4,075

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The overwhelming majority of the workforce is based in Germany. Only minimal staff is employedin Austria and Luxembourg. The number of Adler employees as of 31 March 2011 was 4,075 andhas not changed significantly since then up until the date of this Offering Memorandum.

Until 31 December 2010, Adler Modemarkte AG was a member of the AHD Employers’ Associationfor Working Conditions in the Trade and Services Industry (Arbeitgeberverband AHDUnternehmervereinigung fur Arbeitsbedingungen im Handel- und Dienstleistungsgewerbe e.V.).Adler Modemarkte AG has not been a member of any employers’ association since 1 January2011. A supplemental collective bargaining agreement (company internal wage agreement) enteredinto with the German trade union for the services sector (vereinte Dienstleistungsgewerkschaft,‘‘ver.di’’) is in force at Adler Modemarkte AG. This agreement proscribes general layoffs based onoperating reasons and site closures until 31 December 2012.

Many of Adler Modemarkte AG’s stores have works councils. Adler Modemarkte AG also has acentral works council. Adler Mode Luxembourg also has a representative council for salaried andhourly employees that is responsible for both its stores. One of Adler Modemarkte Austria’s storesand three branches of Adler Asset GmbH (formerly F.W. Woolworth Co. Ges.m.b.H.) also have aworks council. From the beginning of the period covering the Company’s historical financialinformation reproduced in the Financial Section until the date of this Offering Memorandum, therehave not been any strikes or stoppages or other disputes with employee representatives thatmaterially impacted the Company’s business.

Remuneration system

The remuneration of Adler’s employees subject to collective bargaining agreements is governed bythe applicable collective bargaining agreements. Apart from the existing company internal wageagreements (e.g. industry-wide collective bargaining agreement, company pension schemeagreement, collective wage agreement), a supplemental collective bargaining agreement enteredinto with the ver.di union is in force at Adler Modemarkte AG (company internal wage agreement).Some employees of Adler Modemarkte AG and Adler Modemarkte Austria, particularly those inmanagement positions, also receive variable remuneration in addition to their fixed remuneration.Subject to individual contractual provisions, employees in management positions and, for work-related reasons, other employees (e.g. some employees in Construction and Visual Merchandising)may be provided company cars which they may also use for private purposes.

In addition, with the exception of Advers GmbH, the Adler Group companies grant their staffdiscounts ranging from 17% to 25%, depending on the company, as well as other voluntary socialbenefits (such as birthday gift vouchers and payments on defined anniversaries of service – inAustria’s case to the extent not already governed in principle in collective bargaining agreements).

Company pension scheme

Adler Modemarkte AG granted several earlier members of management and one employee in amanagement position individual commitments with respect to pension benefits. In addition to this,an employer-financed pension fund is in place at Adler Modemarkte AG, which has been closed tonew hires since 1 January 1980. According to the applicable collective bargaining agreement, AdlerModemarkte AG also pays those employees subject to collective bargaining agreements an annualpension benefit. Managerial employees of Adler Modemarkte AG have the option of joining thecompany pension fund, ‘‘Versorgungsfond der Adler Modemarkte e.V.’’. Adler Modemarkte AG paysa monthly contribution to this pension fund on behalf of fund members. Adler Modemarkte AGintends to enable its employees to obtain direct insurance. Adler Asset GmbH (formerly F.W.Woolworth Co. Ges.m.b.H) grants a small number of its employees company pension benefits froman employer-funded pension fund which was closed effective 30 November 1969, or a one-offpension allowance to employees who joined the company prior to 1 January 1983. Otherwise Adlerdoes not pay any company pension benefits, with the exception of purely employee-financedcompany pension benefits (deferred compensation).

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SHAREHOLDER STRUCTURE (BEFORE AND AFTER THE OFFERING)

Overview

The following table presents an overview of the Company’s shareholder structure before and afterimplementation of the Offering based on the information provided to the Company from the SellingShareholder:

Shareholdings

Before the Offering

After the Offering with full

implementation of the

capital increase and

excluding exercise of the

Greenshoe Option

After the Offering with full

implementation of the

capital increase and full

exercise of the Greenshoe

Option

Shareholder

No-par

shares %

No-par

shares %

No-par

shares %

Cheverny Investments Limited,

Malta, Gzira ................................... 15,860,000 100.0 8,397,000 45.4 6,880,050 37.2

Free float .......................................... 0 0.0 10,113,000 54.6 11,629,950 62.8

Total ................................................. 15,860,000 100.0 18,510,000 100.0 18,510,000 100.00

Information on the shareholders

Prior to the Offering, the Company’s sole shareholder is Cheverny Investments Limited. bluFinance Limited, Malta holds a 99.99% interest in Cheverny Investments Limited. bluO MaltaHolding Limited, Malta holds a 99.98% interest in blu Finance Limited. bluO SICAV-SIF,Luxembourg holds a 99.98% interest in bluO Malta Holding Limited. The Principal Shareholders donot have any varying voting rights.

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RELATED PARTY TRANSACTIONS

Related parties of the Company include members of the Executive Board and of the SupervisoryBoard as well as their immediate family members and companies over which the Executive Boardor Supervisory Board members of the Company or their immediate family members can exert acontrolling influence, or in which they hold a material voting interest, either directly or indirectly.Related parties also include the Company’s principal shareholders, currently the SellingShareholder and previously AMODA GmbH, including their affiliates. Related parties also includethe Adler Group’s subsidiaries, associated companies and joint ventures.

In March 2009, all shares in the Company’s sole shareholder at the time, AMODA GmbH, weresold and transferred by the METRO Group to bluO beta equity Limited. Until such time therefore,METRO AG and its affiliates also qualified as related parties of the Company. Since then, bluObeta equity Limited, which is affiliated with the Selling Shareholder and which transferred its equityinterest in the Company to the Selling Shareholder in 2011, and its other affiliates qualify asrelated persons of the Company. After the sale of MOTEX effective 30 September 2010, MOTEXalso became a related party of the Company (as an affiliate). MOTEX is the legal successor ofMOTEX Mode-Textil-Service GmbH & Co. KG (‘‘MOTEX GmbH & Co. KG’’), which was dissolvedwithout liquidation by virtue of MOTEX absorbing all of its shares, so its assets and liabilities weretransferred to MOTEX by way of universal succession. Adler Asset GmbH (formerly F.W.Woolworth Co. Ges.m.b.H.) also qualified as a related party of the Company until it was sold by asubsidiary of AMODA GmbH to Adler Modemarkte Austria effective 31 December 2010.

Apart from the business dealings with fully consolidated subsidiaries as set forth in the IFRSconsolidated financial statements, which particularly include all business dealings with MOTEX upuntil its sale effective 30 September 2010, the Company and its subsidiaries are or were party tothe following agreements with related parties in the period from 1 January 2008 up until the date ofthis Offering Memorandum:

Exchange of services with METRO Group companies

In 2008 and 2009, companies within the Adler Group purchased services from the METRO Group,including procurement, energy, transport, facility management, construction tender, advertising andIT services. The Adler Group also entered into leases with METRO Group companies in respect ofsome of the movable and immovable property used by the Adler Group. Some of theseagreements are structured as finance leases and some as operating leases. Companies within theMETRO Group received c29,318 thousand in 2008 for these services and pursuant to the leases.In 2009 (in the period before the Adler Group left the METRO Group), Adler Group companiespaid c3,242 thousand for services provided by the METRO Group, and c1,909 thousand on thebasis of the leases. The Adler Group also made payments of c5,668 thousand to the METROGroup in 2008, primarily as a contribution to head office expenses. The METRO Group paidc1,036 thousand in 2008 and c26 thousand in 2009 (in the period before the Adler Group left theMETRO Group) for services provided by the Adler Group.

Loans and guarantees provided by the METRO Group

METRO Finance B.V. extended a loan to ALASKA GmbH & Co. KG, Munich, for the purpose offinancing the acquisition and incidental transaction costs of an administration building leased to theCompany. The Group has no shareholding in ALASKA GmbH & Co. KG, but it is included in theAdler Group’s consolidated financial statements as a special purpose entity because of its leaseagreement with Adler Modemarkte GmbH (relating to the aforementioned administration building).The loan has a maturity date of 31 July 2024 and is repaid in quarterly instalments. The loanamount was c4,608 thousand as of 31 December 2010. METRO AG also undertook to a creditinstitution on 30 September 2008 to act as guarantor for up to c5,000 thousand of the Company’sliabilities. There were also other loans amounting to c213 thousand as at 1 January 2008 relatingto an undated loan to METRO Group Asset Management Service GmbH with a fixed rate ofinterest of 5%, which was paid back in full in 2008.

Purchasing commission agency agreement with MGB Metro Group Buying Ltd.

Adler engaged MGB, a company belonging to the METRO Group, to act as purchasingcommission agent on its behalf (see ‘‘Material agreements – Purchasing commission agencyagreement with MGB Metro Group Buying Ltd.’’). The Adler Group purchased stock valued atc89,155 thousand in 2008 and stock valued at c23,550 thousand in 2009 (before the Adler Groupleft the Metro Group) from MGB.

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Financial dealings with AMODA GmbH and Adler Treasury GmbH

On 18 November 2004, the Company entered into a profit transfer agreement with its formerparent, AMODA GmbH. In 2008, AMODA GmbH made payments to the Company of c48,809thousand and offset losses of the Company amounting to c2,780 thousand, which led to a c51,589thousand increase in capital reserves according to IFRS. AMODA GmbH made two furtherpayments of c25,600 thousand and c13,000 thousand respectively into capital reserves in 2009.AMODA GmbH also settled receivables of c17,000 thousand owed to the Company, which boostedcapital reserves according to IFRS by c14,500 thousand. These receivables stemmed from anagreement to sell and assign receivables between the Company and Adler Treasury GmbH,pursuant to which the latter assigned receivables owed by AMODA GmbH with a nominal value ofc17,500 thousand to the Company in return for payment of c2,500 thousand.

The Company terminated the profit transfer agreement with AMODA GmbH on 27 September2010, and termination took effect on 31 December 2010. On 23 December 2010, AMODA GmbHand the Company offset AMODA GmbH’s future claim against the Company for the transfer ofprofits in 2010 (valued at c14,327 thousand) against receivables owed to the Company by AMODAGmbH. The offset receivables owed by AMODA GmbH to the Company related to additional tradetax payments of c1,535 thousand, which the Company put up for AMODA GmbH, and purchaseprice claims of c12,792 thousand under an agreement to sell and assign receivables, under whichthe Company sold and assigned claims for repayment and interest against its affiliate, AdlerTreasury GmbH, to AMODA GmbH. The Company’s claims for repayment and interest stemmedfrom loans with a total nominal value of c47,300 thousand extended by the Company to AdlerTreasury GmbH in 2009 and 2010. Other claims for repayment against Adler Treasury GmbHunder the aforementioned loans (valued at c39,228 thousand) were also assigned to the Companyin order to offset a withdrawal by AMODA GmbH from the Company’s capital reserves. In 2010,AMODA GmbH also settled a residual claim of c500 thousand owed to the Company, whichresulted from Adler Treasury GmbH’s receivable against AMODA GmbH with a nominal value ofc17,500 thousand, which was assigned in 2009. The increase in capital reserves according toIFRS totalled c2,072 thousand as a result of this, and also as a result of a partial offset involving aliability under the profit transfer agreement from the previous year amounting to c1,572 thousand.

In the years 2008, 2009 and 2010, the Company also continually paid public charges, fees andtaxes and other expenses of AMODA GmbH, which AMODA GmbH later reimbursed. TheCompany was also covered under AMODA GmbH’s fidelity and D&O insurance policies.

Service level agreements between the Company and bluO International Affiliates Limited

bluO International Affiliates Limited, an affiliate of the Company, provided services to the Companyin 2009, 2010 and 2011 pursuant to two service level agreements. The agreements particularlyrelated to the provision of assistance with budget preparation and liquidity and financial planning,assistance with developing corporate strategy and organisational structure, organisation of the salesstructure, cost reduction measures and human resources issues, and also assistance withmonitoring the financial situation on an ongoing basis. The original agreement was terminatedeffective 31 May 2010 and superseded by a new agreement, which was terminated on 31 March2011. bluO International Affiliates Limited received c1,271 thousand for its services in 2009, andc1,071 thousand in 2010.

Share purchase and assignment agreement between the Company and bluO beta equity Limitedconcerning the MOTEX share

On 28 September 2010, the Company (as seller) and bluO beta equity Limited (as purchaser)entered into an agreement to sell the single share in MOTEX. The Company assigned its sharevalued at c26 thousand to bluO beta equity Limited effective 30 September 2010. The purchaseprice, which was calculated on the basis of two independent valuations, was c135 thousand.

Inclusion of MOTEX in the intra-Group liquidity balancing scheme

By virtue of agreements dated 10 May 2000, 23 April 2003 and 22 August 2003, MOTEX and itslegal predecessor were included in the intra-Group liquidity balancing scheme between theCompany and its subsidiaries. Under this scheme, positive or negative balances in AdlerModemarkte Austria’s account were automatically balanced out on a daily basis through one ofMOTEX’s accounts. Positive or negative balances in the accounts of MOTEX, Adler ModeLuxemburg and Advers GmbH were, in turn, automatically balanced out on a daily basis throughone of Adler Modemarkte AG’s accounts in accordance with a further account linking agreement

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with the banks involved. In the lead-up to the sale of MOTEX, the latter was removed from theintra-Group liquidity balancing scheme and the underlying agreements with MOTEX wereterminated. The Company’s claims against MOTEX as a result of the intra-Group liquidity balancingscheme (c8,722 thousand) were sold and assigned to Adler Modemarkte Austria effective30 September 2010. MOTEX then offset, against these claims, claims totalling c8,583 thousand,which were owed to it by Adler Modemarkte Austria under the intra-Group liquidity scheme.MOTEX settled the remaining difference with Adler Modemarkte Austria in November 2010. TheCompany had also undertaken on 20 January 2010 to offset any losses incurred by MOTEX in the2010 financial year. This agreement was revoked on 10/28 February 2011.

Inclusion of MOTEX in Adler Group loans under which the borrowers are jointly and severally liable

Before MOTEX was sold, the Company and MOTEX (the borrowers) also entered into several loanagreements with Commerzbank Aktiengesellschaft, Saarbrucken, under which the Company wasjointly and severally liable for MOTEX’s liabilities. Some of these loan agreements were alreadyterminated by agreement dated 10/13 October 2008. MOTEX’s liabilities under loan agreementsstill in force and under which joint and several liability exists are valued at no more thanc50 thousand.

Inclusion of MOTEX in the Company’s insurance protection

As a former subsidiary of the Company, MOTEX was covered by the Company’s insurance. TheCompany’s insurance contracts were amended effective 1 January 2011 such that MOTEX is nolonger co-insured.

Master agreements governing textile and transport logistics between Adler Group companies andMOTEX

MOTEX provides transport and textile logistics services in Germany, Austria and Luxembourg, andto this end has entered into agreements with the Company and Adler Modemarkte Austria. Theagreements between MOTEX and the Company or Adler Modemarkte Austria were renewed on15 December 2010 and 10 March 2011 and may be terminated on 12 months’ notice, however notbefore 31 December 2013. MOTEX receives a fee for its services, which is calculated based onthe number of units transported (transport logistics) or the number of services performed per unit(textile logistics) and fixed service charges, which apply until 31 December 2013. These amountedto c3,846 thousand in the fourth quarter of 2010.

Stock purchase agreement between the Company and MOTEX

On 13 December 2010, the Company entered into an agreement with MOTEX to purchase stocksold by MOTEX through a factory outlet. The purchase price was c1,000 thousand and fell due on7 January 2011.

Master agreements for IT services between the Company and MOTEX

Under master agreements governing the provision of services, the Company provides data centreand network services, project services in the form of advisory and development services, andprocurement and strategy services for MOTEX. The master agreements were entered into for anindefinite term and may be terminated in writing by either party on 12 months’ notice to the end ofany calendar year. The Company provided IT services valued at c89 thousand to MOTEX in thefourth quarter of 2010.

Offsetting arrangement between the Company, Ahlers AG and MOTEX

Ahlers AG is the parent company of several of the Company’s suppliers (collectively referred to asthe ‘‘Ahlers Group’’). These suppliers are owed receivables by Adler as a result of the supplyarrangements. MOTEX has receivables against companies in the Ahlers Group on the basis of itswarehousing and freight forwarding activities. In 2010, Ahlers AG, the Company and MOTEXagreed to settle payments by offsetting receivables owed to one another, subject to a waiver of therequirement of reciprocity. The Company terminated the agreement effective 31 March 2011.

Sub-licensing of the ‘‘Adler’’ trademark to Adler Asset GmbH (formerly F.W. Woolworth Co. Ges.m.b.H.)

In 2009, the Adler Group generated royalties of c1,800 thousand from the grant of a sub-licence inrespect of the ‘‘Adler’’ trademark by Adler Modemarkte Austria to its former affiliate, Adler AssetGmbH (formerly F.W. Woolworth Co. Ges.m.b.H.).

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Acquisition of Adler Asset GmbH (formerly F.W. Woolworth Co. Ges.m.b.H.) by Adler Treasury GmbH

By agreement dated 17 December 2010, Adler Modemarkte Austria acquired 100% of the sharesin Adler Asset GmbH (formerly F.W. Woolworth Co. Gesellschaft m.b.H.) from a subsidiary ofAMODA GmbH, Adler Treasury GmbH, effective 31 December 2010. The purchase price wasc1,761 thousand.

Exchange of services between the Adler Group and Adler Asset GmbH (formerly F.W. Woolworth Co.Ges.m.b.H.)

Adler Asset GmbH (formerly F.W. Woolworth Co. Ges.m.b.H.), which has formed part of the AdlerGroup since 31 December 2010, has provided retail space, staff and other services to eight ofAdler Modemarkte Austria’s stores since February 2010 and receives cost price for its services.Adler Asset GmbH (formerly F.W. Woolworth Co. Ges.m.b.H.) has also leased areas in four storesdirectly to Adler Modemarkte Austria. In addition, the Company provides IT services to Adler AssetGmbH (formerly F.W. Woolworth Co. Ges.m.b.H.) pursuant to a master agreement for IT servicesconcluded in 2009.

Loan agreement between Adler Treasury GmbH and Adler Asset GmbH (formerly F.W. Woolworth Co.Ges.m.b.H.)

Adler Treasury GmbH and Adler Asset GmbH (formerly F.W. Woolworth Co. Ges.m.b.H.) enteredinto a loan agreement on 28 September 2010. Under the agreement, Adler Treasury GmbHextended a loan of c50 thousand to Adler Asset GmbH. The loan was repayable on 31 December2010 and bore interest at 1.1% p.a. from 1 October 2010 until repayment. Adler Asset GmbHrepaid the loan in February 2011.

Consulting agreement between the Company and Susanne Schafer

Since 1 July 2009, the wife of the Company’s Chief Executive Officer has provided advisoryservices relating to the marketing of the Company’s products pursuant to a consulting agreementconcluded on 1 May 2009. She receives a daily rate of c350 for her services. Mrs Schafer hasundertaken not to work directly or indirectly for competitors of the Company for the term of theagreement and for six months thereafter. The agreement was initially entered into for a limited termand was automatically extended by a further month at the end of each term, unless terminated byeither party on 30 days’ notice to the end of the current term. Susanne Schafer received a totalfee of c40 thousand in the 2010 financial year.

Sale of the Company’s used vehicles to Schafer GmbH

In 2009 and 2010, Land- und Gartentechnik Schafer GmbH Landmaschinen-Gartengerate-Automobile, Limburg an der Lahn, the managing director of which is the brother of the Company’sChief Executive Officer, purchased used passenger vehicles from the Company with a total valueof c500 thousand.

Consulting and bonus agreement between the Company and AHS Unternehmensberatung GmbH

Pursuant to an agreement dated 13 March 2009, AHS Unternehmensberatung GmbH, Chur,Switzerland, the managing director of which is Holger Kowarsch, a current member of theCompany’s Supervisory Board, charged the Company a total of c40 thousand in the 2009 financialyear for advisory services relating to the restructure of the Adler Group. The agreement wasterminated in accordance with the relevant notice requirements effective 1 March 2010. No furtherfees were paid to AHS Unternehmensberatung GmbH in 2010.

On-charge of IPO costs to the Selling Shareholder

By an agreement dated 23 May 2011 the Selling Shareholder accepted to bear up to 35% ofcertain costs related to the IPO. The Selling Shareholder’s costs will be due and payable on 31July 2011 and are limited as follows: If the Company’s shares are admitted to the stock exchangeand the listing commences until 30 June 2011, the Selling Shareholder’s costs shall not exceed anamount equal to c1,300,000, otherwise the Selling Shareholder’s costs shall not exceed an amountequal to c1,000,000. Background is that the Selling Shareholder as the parent company will benefitfrom the IPO.

The Company believes that all transactions with its related parties are based on standard marketconditions.

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TAXATION IN THE FEDERAL REPUBLIC OF GERMANY

This section contains a summary of certain important German tax principles that may be relevantwith respect to the acquisition, holding, and transfer of shares. This discussion does not purport tobe a complete or exhaustive description of all potential tax aspects that may become of relevanceto the shareholders. This summary is based on domestic German tax law applicable as of the dateof this Offering Memorandum, including the provisions of double taxation treaties entered intobetween Germany and other countries. Please note that the status of such laws and treaties maychange and that such changes may, in certain circumstances, have retroactive effect.

This section is no substitute for the individual tax advice provided to each particular shareholder.Persons interested in acquiring shares are therefore urged to consult their tax advisors regardingthe tax consequences of the acquisition, holding, sale or transfer by gift or inheritance of sharesand a possible refund of withholding tax (Kapitalertragsteuer). Only such individual tax advice canadequately take into account the special tax situation of the individual shareholder.

Taxation of the Company

In Germany, the profits earned by the Company are generally subject to corporate income tax at arate of 15%, plus a solidarity surcharge of 5.5% thereon (resulting in a total tax liability of15.825%).

Dividends or other profit shares, which the Company receives from domestic or foreigncorporations, are generally exempt from corporate income tax; however, a flat 5% of such incomeis deemed to be a non-deductible business expense and is therefore subject to corporate incometax (plus solidarity surcharge). In effect, this limits the tax exemption to 95%. The same applies tothe Company’s gains on the disposal of shares in another domestic or foreign corporation. Capitallosses and disposal costs are not tax deductible. Actual business expenses incurred in connectionwith domestic or foreign equity investments in corporations may, however, be deducted in fullunless they are disposal costs.

In addition, corporations are subject to trade tax (Gewerbesteuer) on trade earnings(Gewerbeertrag) generated at their permanent establishments (Betriebsstatten) in Germany. Theeffective trade tax rate depends upon the local municipalities in which the Company maintainspermanent establishments. The average municipal trade tax charge is about 14% of the tradeearnings. This average tax rate is based on an (national) average multiplier (Hebesatz) of 400%and the 3.5% uniform basic tax rate.

Profit shares received by domestic and foreign corporations and capital gains on the disposal ofshares in another corporation are generally treated in the same manner for trade tax purposes asfor corporate income tax purposes. However, up to 95% of the profit shares received will in effectbe tax-exempt only if the Company held at least a 15% equity interest in the other corporation atthe beginning of the tax assessment period in question (so-called trade tax participation exemption(gewerbesteuerliches Schachtelprivileg)). For corporations domiciled in another EU member state,the trade tax participation exemption will apply if the minimum equity interest is a mere 10%. Bycontrast, additional restrictions regarding the grant of the trade tax participation exemption willapply for profit shares from corporations domiciled outside the EU.

In determining the Company’s taxable profit, interest expenses may be deducted only in theamount of the interest income, and for the additional interest balance the deduction will generallybe limited to 30% of modified EBITDA (earnings before interest expenses and interest income,taxes, depreciation and amortisation) for tax purposes, if the interest balance is c3 million or moreand no exceptional circumstances come into play. Interest expenses that may not be deducted arecarried forward without restriction into the Company’s subsequent financial years (so-called interestcarry-forward). The available EBITDA carry-forward that exceeds the interest balance is carriedforward into the following five financial years.

Tax loss carry-forwards may be used to fully offset any positive net income, which is subject tocorporate income tax, or trade earnings of up to c1 million only. Where the net income or the tradeearnings are in excess of this amount, only 60% of such excess may be offset against the taxlosses carried forward. The remaining 40% is subject to tax (so-called minimum taxation(Mindestbesteuerung)). As a general rule, tax loss carry-forwards that are not utilised may,however, be carried forward indefinitely and, in the context of the minimum taxation, may be usedto offset future taxable income or trade earnings.

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Interest carry-forwards and unused losses of the Company will expire in full if more than 50% ofthe subscribed capital, membership rights, participation rights, or voting rights are transferred,directly or indirectly, to an acquirer or related parties of such acquirer within a period of five yearsor there is a comparable situation (tainted acquisition of an equity investment). In addition, lossesof the current financial year incurred up to the tainted acquisition of the equity investment may nolonger be offset against profits. For transfers of more than 25% and up to 50%, interest carry-forwards or unused losses may no longer be used in the ratio of the transferred shares. If unusedlosses and interest carry-forwards are covered by the hidden reserves of the domestic businessassets of the company incurring the loss, the losses will not expire. Hidden reserves from foreignbusiness assets will not be taken into account in this respect. The set-off of hidden reserves fromdomestic business assets against interest carry-forwards ranks subordinate to the set-off againstunused losses.

Taxation of the shareholders

When discussing taxation of the shareholder, a differentiation must be made between taxation inconnection with the holding of the shares (taxation of dividends), the disposal of shares forconsideration (taxation of capital gains), and the gratuitous transfer of shares (inheritance and gifttax).

Taxation of dividends

Withholding tax

Upon the payment of dividends, the Company must generally withhold a withholding tax in theamount of 25% plus a solidarity surcharge of 5.5% thereon (i.e. a total of 26.375%), as well aschurch tax, if any, and deliver such tax to the tax authorities. The Company is not responsible forwithholding taxes at the source. The tax base for the dividend withholding tax is the dividendresolved by the Annual General Meeting of the Company.

The withholding and remittance of withholding tax are independent of whether and to what extentthe dividends are taxable at the level of the shareholder and regardless of whether the shareholderis resident in or outside of Germany. Exceptions may apply with respect to certain shareholders,for example corporations domiciled outside of Germany in another Member State of the EuropeanUnion if the Parent-Subsidiary Directive of the EU (Council Directive 90/435/EEC dated 23 July1990, as amended) is applicable to such shareholders. In this case, the withholding of the dividendwithholding tax may be waived upon application, provided that an equity interest of at least 10% isheld and additional requirements are met. The same applies with respect to dividends that aredistributed to a permanent establishment situated in another Member State of the EU or of aparent company which is subject to unlimited tax liability in Germany, provided that the equityinterest in the company does, in fact, form part of the business assets of this permanentestablishment.

Dividend payments to other non-resident shareholders are subject to withholding tax at a reducedrate (generally 15%) where Germany and such shareholder’s home country have entered into adouble taxation treaty, the shareholder is entitled to protection under the respective treaty, theshareholder is entitled to take advantage of the treaty benefits under German national tax law, andthe shareholder does not hold the shares through a permanent establishment or fixed base inGermany, or as business assets for which a permanent representative has been appointed inGermany. As a rule, the reduction in withholding tax is granted by refunding the difference betweenamounts withheld pursuant to the application of statutorily prescribed rates (including the solidaritysurcharge) and the shareholder’s liability for withholding tax based on the application of therelevant double taxation treaty (generally 15%). The shareholder must apply for a refund bysubmitting the appropriate form to the German Federal Office for Taxes (Bundeszentralamt furSteuern). Where a corporation resident in the other treaty country holds a direct equity interest ofat least 10%, the withholding of the difference in amounts may, upon application, be dispensedwith provided certain requirements are met. The appropriate application forms are available fromthe Bundeszentralamt fur Steuern, Hauptdienstsitz Bonn-Beuel, An der Kuppe 1, D-53225 Bonn(www.bzst.bund.de), as well as at German embassies and consulates. If the shareholder is aforeign corporation, reduction in the withholding tax rate is tied to the fulfilment of furtherrequirements under German law.

159


Taxation of shareholders resident in Germany

Private assets

Dividends paid to shareholders holding the shares as private (non-business) assets are subject toa uniform tax rate of 25% plus the solidarity surcharge (overall rate of 26.375%) as well as churchtax, if any (so-called final flat-rate tax (Abgeltungssteuer)). This tax rate corresponds to thewithholding tax rate for dividends. The private investor’s liability for income tax (plus solidaritysurcharge and church tax, if any) will invariably be satisfied through the withholding of theinvestment income tax (withholding tax) at the corporation level, i.e., the tax withheld is definitiveregardless of the shareholder’s individual tax rate. Shareholders may apply for the tax on theirinvestment income to be assessed at the normal income tax rate if this would serve to lower theirrespective tax burden. In both cases, however, the deduction of income-related expenses frominvestment income will no longer be permitted, with the exception of the flat ‘‘saver’s’’ allowance(Sparerpauschbetrag) totalling c801 (or c1,602 for married couples filing a joint income tax return).

Business assets

If the shares are held as business assets, taxation depends upon whether the shareholder is acorporation (Kapitalgesellschaft), a sole proprietor (Einzelunternehmer), or a partnership(Personengesellschaft):

Dividend payments received by corporations are generally exempt from corporate income tax.However, 5% of the tax-free dividend income is deemed to be non-deductible business expense.Therefore, 5% of the dividends are in effect subject to taxation. In return, the business expensesactually incurred in relation to the shares may generally be deducted without limitation.

Tax-exempt dividend income is to be taken into account for purposes of determining the trade taxassessment basis, unless the corporation held at least 15% of the Company’s registered sharecapital as of the beginning of the relevant tax assessment period. In the latter instance, however,5% of the dividends that are considered non-deductible business expenses are subject to trade tax.

In the case of sole proprietors holding the shares as business assets, 60% of dividend payments issubject to tax (plus solidarity surcharge and church tax, if any) at the respective progressiveincome tax rate. Correspondingly, only 60% of business expenses having an economic nexus tosuch dividend income is deductible (subject to other limitations on deductibility) for tax purposes(under the so-called partial-income method (Teileinkunfteverfahren)). In addition, the dividendpayments are subject to trade tax in the full amount to the extent the shareholder is liable for tradetax and the shareholder did not hold at least 15% of the Company’s share capital at the beginningof the relevant tax assessment period. However, depending on the local municipality’s trade taxrate and the sole proprietor’s individual tax circumstances, trade tax will be credited in full or inpart against the shareholder’s income tax liability.

Where the shares are held by a partnership, personal or corporate income tax is levied only at thelevel of its partners. If the partners are subject to corporate income tax, 95% of the dividendpayments are tax-exempt. By contrast, if a partner is subject to personal income tax, 60% of thedividends will be subject to income tax plus solidarity surcharge and church tax, if any. Withrespect to the deductibility of business expenses, see the discussion above regarding partnerssubject to corporate income tax and partners subject to personal income tax.

Dividend payments are subject to trade tax in the full amount at the level of the partnership to theextent the partnership is liable for trade tax and did not hold at least 15% of the Company’sregistered share capital as of the beginning of the relevant tax assessment period. To the extentan individual has an ownership interest in a partnership, trade tax imposed at the level of thepartnership will – depending on the local municipality’s trade tax rate and such individual partner’stax circumstances – be credited in full or in part against such individual partner’s income taxliability. To the extent corporations have an ownership interest in the partnership, trade tax is leviedon 5% of the dividends that are considered non-deductible business expenses, even if thepartnership holds at least 15% of the Company’s registered share capital.

Under certain conditions, special rules apply for credit institutions, financial services institutions,finance companies, life insurance companies, health insurance companies, and pension funds.

Shareholders resident outside of Germany

For non-resident shareholders who do not hold their shares through a permanent establishment orfixed base in Germany, or as business assets for which a permanent representative has been

160


appointed in Germany, the tax liability is generally discharged through the withholding of the26.375% withholding tax plus solidarity surcharge; where appropriate, a reduction (generally to15%) and a partial refund of or exemption from withholding tax may be obtained on the basis of anapplicable double taxation treaty (see the section entitled ‘‘Withholding tax’’ above). Whereshareholders hold their shares (either directly or via a partnership) as assets of a permanentestablishment or fixed base in Germany, or as business assets for which a permanentrepresentative has been appointed in Germany, the above-described partial-income method shallapply.

Taxation of capital gains

Shareholders resident in Germany

Private assets

Capital gains realised on a disposal of shares are subject to the final flat tax rate of 25% (plussolidarity surcharge and church tax, if any), if the equity interest amounts to less than 1% of theCompany’s share capital and was acquired after 31 December 2008. If the capital gain is paid orcredited by a domestic paying agent (e.g. custodian bank), the flat-rate final tax will be withheld byway of a deduction from the investment income for the account of the shareholder. Shareholdersmay apply for the tax on their investment income to be assessed at the normal income tax rate ifthis would lower their respective tax burden. In both cases, however, the deduction of income-related expenses from the capital gains realised will no longer be permitted, with the exception ofthe flat ‘‘saver’s’’ allowance (Sparerpauschbetrag) totalling c801 (or c1,602 for married couplesfiling a joint income tax return). Gains from the disposal of equity interests representing less than1% of the Company’s share capital are non-taxable if the interest was acquired prior to 1 January2009.

If the shareholder or – in the event of a gratuitous transfer – such shareholder’s legal predecessor,or one of the shareholder’s legal predecessors if the shares were transferred gratuitously severaltimes in succession has, at any point during the five years immediately preceding the disposal,held an interest in the Company’s share capital of at least 1%, then the taxpayer generates incomefrom business operations (Gewerbebetrieb) upon the disposal of the shares. This income is notsubject to the final flat-rate tax, but rather the individual income tax rate is applied. Here, too, thepartial-income method is used, i.e., only 60% of the income is subject to taxation and only 60% ofexpenses is considered in the determination of income.

The above discussion applies mutatis mutandis to gains realised on the disposal of subscriptionrights. The exercise of a subscription right will likewise be deemed a disposal of same. The capitalgain to be considered for tax purposes corresponds to the stock market price of the subscriptionright at the time of acceptance of the rights offering. Such gain forms part of the new shares’acquisition cost.

Business assets

If the shares are held as business assets, taxation of the capital gain on the disposal of sharesdepends upon whether the shareholder is a corporation, a sole proprietor, or a partnership:

If the shareholder is a corporation, the capital gains realised are generally exempt from corporateincome tax and trade tax, irrespective of the amount of the equity investment and the shares’holding period. However, 5% of the capital gains are considered non-deductible business expensesand are therefore subject to taxation. In effect, this limits the tax exemption to 95%. In return, thebusiness expenses actually incurred in relation to the shares may generally be deducted withoutlimitation. Capital losses as well as losses resulting from the write-down of shares to going concernvalue are not deductible for tax purposes.

Where the shares are held by sole proprietors, 60% of capital gains are subject to income tax plussolidarity surcharge and church tax, if any. Correspondingly, only 60% of business expenseshaving an economic nexus to such capital gains, and 60% of any capital losses or losses resultingfrom the write-down of shares to going concern value are deductible for tax purposes. If the soleproprietor is liable for trade tax, 60% of the capital gains are subject to trade tax. However,depending on the local municipality’s trade tax rate and the sole proprietor’s individual taxcircumstances, trade tax will be credited in full or in part against the shareholder’s income taxliability.

If the shareholder is a partnership, tax treatment depends upon whether the partners are subject topersonal or corporate income tax: In effect, if a partner is a corporation, 95% of the capital gains

161


are generally tax exempt. For partners subject to personal income tax, 60% of the capital gains aretaxable. Similar rules apply for purposes of the trade tax depending upon the composition of thepartnership’s partners if the partnership is liable for trade tax. To the extent an individual has anownership interest in a partnership, trade tax imposed at the level of the partnership will –depending on the local municipality’s trade tax rate and such individual partner’s tax circumstances– be credited in full or in part against such individual partner’s income tax liability. With respect tothe deductibility of business expenses having an economic nexus to the capital gains and thedeductibility of capital losses, see the discussion above regarding partners subject to corporateincome tax and partners subject to personal income tax.

At present, the tax treatment regarding the disposal of subscription rights held as business assetshas not been conclusively settled. According to the fiscal administration and the most recentdecisions by the German Federal Fiscal Court (Bundesfinanzhof), any such capital gains realisedby corporations are taxable in full. It is possible that this also applies to corresponding gainsrealised by sole proprietors and partnerships.

Under certain conditions, special rules apply for credit institutions, financial services institutions,finance companies, life insurance companies, health insurance companies, and pension funds.

Shareholders resident outside of Germany

Capital gains realised by non-resident shareholders who do not hold their shares though apermanent establishment or fixed base in Germany, or as business assets for which a permanentrepresentative has been appointed in Germany, are only subject to tax in Germany where thedisposing shareholder, or – in the case of a gratuitous acquisition – the shareholder’s legalpredecessor, or one of the shareholder’s legal predecessors if the shares were transferredgratuitously several times in succession, held a direct or indirect equity interest of at least 1% ofthe Company’s share capital at any point during the five years preceding the disposal. If theshareholder is a corporation, only 5% of the capital gains is subject to corporate income tax andthe solidarity surcharge. If the shareholder is a natural person, 60% of the capital gains is taxable(under the partial-income method).

Normally, however, German double taxation treaties provide for a complete exemption fromGerman taxation and cede the right of taxation to the shareholder’s country of residence.

The rules described above regarding shareholders who are resident in Germany apply mutatismutandis with respect to capital gains arising on the disposal of shares that were held though apermanent establishment or fixed base in Germany, or as business assets for which a permanentrepresentative has been appointed in Germany. As a rule, the existing double taxation treaties alsocede the right of taxation to Germany.

Special rules for credit institutions, financial services institutions, finance companies, lifeinsurance companies, health insurance companies and pension funds

If credit institutions and financial services institutions hold shares which are allocable to theirtrading book (Handelsbuch) pursuant to § 1a German Banking Act (Kreditwesengesetz, ‘‘KWG’’),then neither the applicable exemption from corporate income tax (95%) nor the partial-incomemethod will apply to dividends or capital gains and capital losses arising on the disposal of shares,i.e., dividend income and capital gains are fully subject to corporate income tax and trade tax. 95%of dividends may be exempt from trade tax if an equity interest of at least 15% was held in theCompany’s share capital at the beginning of the relevant tax assessment period. The foregoingalso applies with respect to shares acquired by finance companies within the meaning of theGerman Banking Act for the purpose of deriving gains from short-term proprietary trading. This alsoapplies to credit institutions, financial services institutions and finance companies that have theirregistered office in another Member State of the European Union or in another signatory to theAgreement on the European Economic Area. However, liability for trade taxation arises only if theshares are held through a permanent establishment. Similarly, the 95% exemption valid forcorporate income tax does not apply to dividends paid with respect to, or capital gains and lossesarising on the disposal of, shares held by life insurance and health insurance companies andpension funds which are allocable to capital investments. For these shareholders, however, a tradetax exemption is not possible as a result of the size of the investment. However, there is anexception to the taxation of dividend income and capital gains which fall within the scope of theParent-Subsidiary Directive of the EU. 95% of such amounts are exempt from taxation.

162


Inheritance and gift tax

The transfer of shares to another person by gift or causa mortis is only subject to gift orinheritance tax under the following circumstances:

(i) The decedent, donor, heir, beneficiary, or any other transferee maintained, as of the date ofthe transfer, a residence, habitual abode, place of management or registered office, inGermany or, as a German citizen, has not spent more than five consecutive years outside ofGermany without maintaining a residence in Germany;

(ii) independent of these individual circumstances, the shares were held by the decedent ordonor as business assets for which a permanent establishment was maintained in Germanyor for which a permanent representative in Germany had been appointed; or

(iii) the decedent, at the time of accrual of the inheritance, or the donor, at the time of the gift,either individually or collectively with related parties, held, directly or indirectly, at least 10% ofthe Company’s share capital. In exceptional cases, a lower equity interest may also suffice.

The few estate and gift tax double taxation treaties which Germany has entered into with othercountries generally provide that German inheritance or gift tax is levied only in case (i) and –subject to certain restrictions – in case (ii).

Other Taxes

No other taxes are assessed on the acquisition, disposal, or other forms of transfer of shares(value added tax, transfer tax, etc.). However, business owners may opt for the payment of valueadded tax on transactions that are otherwise tax exempt where the transaction is carried out onbehalf of another business owner for its business. At present, Germany does not levy a wealth tax(Vermogensteuer).

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Financial Section

CONTENT

Unaudited consolidated interim financial statements of Adler Modemarkte AG as at31 March 2011 (IFRS) .............................................................................................................. F-2– Consolidated income statement for the period from 1 January 2011 to 31 March

2011.................................................................................................................................. F-3– Consolidated balance sheet as at 31 March 2011.......................................................... F-4– Consolidated statement of changes in equity for the period from 1 January 2011 to

31 March 2011 ................................................................................................................. F-5– Consolidated statement of cash flows for the period from 1 January 2011 to

31 March 2011 ................................................................................................................. F-6– Notes to the consolidated financial statements as at 31 March 2011............................ F-7

Audited consolidated financial statements of Adler Modemarkte GmbH as at31 December 2010 (IFRS) ....................................................................................................... F-14– Consolidated income statement for the financial year from 1 January 2010 to

31 December 2010........................................................................................................... F-15– Consolidated balance sheet as at 31 December 2010 ................................................... F-16– Consolidated statement of changes in equity for the financial year from 1 January

2010 to 31 December 2010 ............................................................................................. F-17– Consolidated statement of cash flows for the financial year from 1 January 2010 to

31 December 2010........................................................................................................... F-18– Notes to the consolidated financial statements as at 31 December 2010 ..................... F-19– Auditors’ Report ................................................................................................................ F-68

Audited consolidated financial statements of Adler Modemarkte GmbH as at31 December 2009 (IFRS) ....................................................................................................... F-69– Consolidated income statement for the financial year from 1 January 2009 to

31 December 2009........................................................................................................... F-70– Consolidated balance sheet as at 31 December 2009 ................................................... F-71– Consolidated statement of changes in equity for the financial year from 1 January

2009 to 31 December 2009 ............................................................................................. F-73– Consolidated statement of cash flows for the financial year from 1 January 2009 to

31 December 2009........................................................................................................... F-74– Notes to the consolidated financial statements as at 31 December 2009 ..................... F-75– Auditors’ Report ................................................................................................................ F-118

Audited annual financial statements of Adler Modemarkte GmbH as at 31 December2010 (HGB) ............................................................................................................................... F-119– Income statement for the financial year from 1 January 2010 to 31 December 2010 .. F-120– Balance sheet as at 31 December 2010 ......................................................................... F-121– Notes to the annual financial statements as at 31 December 2010............................... F-123– Auditors’ Report ................................................................................................................ F-131

Audited annual financial statements of Adler Modemarkte GmbH as at 31 December2008 (HGB) ............................................................................................................................... F-132– Income statement for the financial year from 1 January 2008 to 31 December 2008 .. F-133– Balance sheet as at 31 December 2008 ......................................................................... F-134– Notes to the annual financial statements as at 31 December 2008............................... F-136– Auditors’ Report ................................................................................................................ F-142– Statement of cash flows for the financial year from 1 January 2008 to 31 December

2008.................................................................................................................................. F-143– Statement of changes in equity for the financial year from 1 January 2008 to 31

December 2008 ................................................................................................................ F-144– Auditors’ Report ................................................................................................................ F-145

F-1


Unaudited consolidated interim financial statementsof Adler Modemarkte AG

as at 31 March 2011 (IFRS)

F-2


Consolidated income statementfor the period from 1 January 2011 to 31 March 2011

1 Jan.-31 Mar.

2011*

1 Jan.-31 Mar.

2010*

c’000 c’000

Revenue ........................................................................................................ 91,906 84,249Other operating income ................................................................................. 2,601 2,240Cost of materials ........................................................................................... -47,321 -43,790Personnel expenses ...................................................................................... -19,286 -17,778Other operating expenses ............................................................................. -34,502 -32,321

EBITDA ......................................................................................................... -6,602 -7,400

Depreciation and amortisation ....................................................................... -3,360 -3,596

EBIT .............................................................................................................. -9,962 -10,996

Other interest and similar income.................................................................. 20 773Interest and similar expenses ........................................................................ -914 -1,099

Net finance costs......................................................................................... -894 -326

Profit/loss from operations......................................................................... -10,856 -11,322

Income taxes ................................................................................................. 2,006 67

Profit/loss from continuing operations ..................................................... -8,850 -11,255

Profit/loss from discontinued operations ................................................. 0 -1,059

Consolidated net loss for the period (-) .................................................... -8,850 -12,314

of which attributable to shareholders of Adler Modemarkte AG ................ -8,850 -12,314

Earnings per share (continuing operations)Undiluted in c ............................................................................................. -0.56 -0.71*Diluted in c ................................................................................................. -0.56 -0.71*

Earnings per share (discontinued operations)Undiluted in c ............................................................................................. 0 -0.07*Diluted in c ................................................................................................. 0 -0.07*

Consolidated statement of comprehensive incomefor the period from 1 January 2011 to 31 March 2011

1 Jan.-31 Mar.

2011

1 Jan.-31 Mar.

2010

c’000 c’000

Consolidated net loss for the period (-) .................................................... -8,850 -12,314

Other comprehensive income ........................................................................ 0 0

Consolidated total comprehensive income .............................................. -8,850 -12,314

of which attributable to shareholders of Adler Modemarkte AG ................ -8,850 -12,314

* In order to present comparison figures, earnings per share have been calculated on the basis of the 15,860,000 shares currentlyin issue. For the period from 1 January to 31 March 2010, and as reported in the consolidated financial statements as at31 December 2010, however, only one share existed.

F-3


Consolidated balance sheetas at 31 March 2011

ASSETS 31 Mar. 2011 31 Dec. 2010

c’000 c’000

Non-current assetsIntangible assets ......................................................................................... 3,123 2,994Property, plant and equipment .................................................................... 50,708 52,215Investment property .................................................................................... 3,374 3,374Other receivables and other assets ............................................................ 642 649Deferred tax assets ..................................................................................... 10,142 8,269

Total non-current assets .......................................................................... 67,989 67,501

Current assetsInventories................................................................................................... 78,281 56,749Trade receivables........................................................................................ 1,935 1,338Other receivables and other assets ............................................................ 6,871 3,908Available-for-sale financial assets ............................................................... 263 263Cash and cash equivalents ......................................................................... 13,902 32,956

Total current assets .................................................................................. 101,252 95,214

Total ASSETS ............................................................................................ 169,241 162,715

EQUITY and LIABILITIES 31 Mar. 2011 31 Dec. 2010

c’000 c’000

EQUITYCapital and reservesSubscribed capital ....................................................................................... 15,860 15,860Capital reserves .......................................................................................... 101,001 101,001Accumulated other comprehensive income................................................. 0 0Net accumulated losses .............................................................................. -84,545 -75,694

Total equity ................................................................................................ 32,316 41,167

LIABILITIESNon-current liabilitiesProvisions for pensions and other employee benefits................................. 4,535 4,607Other provisions .......................................................................................... 1,110 1,044Financial liabilities ....................................................................................... 4,295 4,360Finance lease obligations............................................................................ 33,824 36,277Other liabilities............................................................................................. 0 249Deferred tax liabilities .................................................................................. 436 628

Total non-current liabilities ...................................................................... 44,200 47,165

Current liabilitiesOther provisions .......................................................................................... 2,602 2,792Financial liabilities ....................................................................................... 17,086 14,213Finance lease obligations............................................................................ 9,821 9,762Trade payables ........................................................................................... 45,338 27,829Other liabilities............................................................................................. 17,533 19,502Income tax liabilities .................................................................................... 345 285

Total current liabilities.............................................................................. 92,725 74,383

Total liabilities ........................................................................................... 136,925 121,548

Total EQUITY and LIABILITIES ................................................................ 169,241 162,715

F-4


Consolidated statement of changes in equityfor the period from 1 January 2011 to 31 March 2011

Subscribed

capital

Capital

reserves

Accumulated

other

comprehensive

income

Net

accumulated

losses Total equity

c’000 c’000 c’000 c’000 c’000

As at 1 Jan. 2011.............. 15,860 101,001 0 -75,694 41,167Income subsidies fromshareholders....................... 0 0 0 0 0Additions to capitalreserves ............................. 0 0 0 0 0

Total transactions withshareholders..................... 0 0 0 0 0

Consolidated net loss forthe period ........................... 0 0 0 -8,851 -8,851

Other comprehensiveincome................................ 0 0 0 0 0

Consolidated totalcomprehensive income ... 0 0 0 -8,851 -8,851

As at 31 Mar. 2011............ 15,860 101,001 0 -84,545 32,316

Consolidated statement of changes in equityfor the period from 1 January 2010 to 31 March 2010

Subscribed

capital

Capital

reserves

Accumulated

other

comprehensive

income

Net

accumulated

losses Total equity

c’000 c’000 c’000 c’000 c’000

As at 1 Jan. 2010.............. 15,860 138,157 0 -84,743 69,274Income subsidies fromshareholders....................... 0 500 0 0 500Contribution to capitalreserves ............................. 0 1,572 0 0 1,572

Total transactions withshareholders..................... 0 2,072 0 0 2,072

Consolidated net loss forthe period ........................... 0 0 0 -12,314 -12,314

Other comprehensiveincome................................ 0 0 0 0 0

Consolidated totalcomprehensive income ... 0 0 0 -12,314 -12,314

As at 31 Mar. 2010............ 15,860 140,229 0 -97,057 59,032

F-5


Consolidated statement of cash flowsfor the period from 1 January 2011 to 31 March 2011

1 Jan.-31 Mar. 2011

1 Jan.-31 Mar. 2010

c’000 c’000

Consolidated net loss (-) before tax.................................................. -10,856 -12,099(+) Depreciation and amortisation on property, plant and equipment

and intangible assets ........................................................................ 3,360 3,772(+) Impairment....................................................................................... 0 2,115Decrease (-) in pension provisions ....................................................... -72 -62Losses (+) from the sale of non-current assets .................................... 6 157Other non-cash expenses (+) ............................................................... 6,224 4,620Net finance costs .................................................................................. 894 329Interest received.................................................................................... 20 13Interest paid .......................................................................................... -48 -41Income taxes paid ................................................................................. -115 -116Increase (-) in inventories ..................................................................... -22,024 -14,231Increase (-) in trade receivables and other receivables ........................ -3,650 -1,660Increase (+) in trade payables, other liabilities and other provisions .... 12,566 5,581Increase (+)/decrease (-) in other balance sheet items ........................ 55 -223

Net cash used in (-) operating activities(Net cashflow) ..................................................................................... -13,640 -11,845

Proceeds from disposals of non-current assets .................................... 14 309Payments for investments in non-current assets .................................. -2,001 -564

Net cash used in (-) investing activities ........................................... -1,987 -255

Free cashflow ...................................................................................... -15,627 -12,100

Cash flows from the repayment (-) of current financial liabilities .......... -57 0Repayments of borrowings ................................................................... -111 -59Payments in connection with finance lease liabilities............................ -3,259 -3,236

Net cash used in (-) financing activities ........................................... -3,427 -3,295

Net decrease (-) in cash and cash equivalents ................................ -19,054 -15,395

Cash and cash equivalents at beginning of period ............................... 32,956 36,991Cash and cash equivalents reclassified into ‘‘non-current assets held

for sale’’ ............................................................................................ 0 -288Cash and cash equivalents at end of period......................................... 13,902 21,308

Net decrease (-) in cash and cash equivalents ................................ -19,054 -15,395

F-6


Notes to the consolidated financial statements as at 31 March 2011

I. Preliminary remarks

Adler Modemarkte AG is a corporation (Kapitalgesellschaft) in accordance with German law and itsregistered office is at Industriestrasse 1-5, Haibach, Federal Republic of Germany. The relevantregistration court is located in Aschaffenburg (registered under number HRB 11581).

The Adler Group (Adler Modemarkte AG and its subsidiaries) is engaged in apparel retailing andoperates specialist clothing stores in Germany, Luxembourg and Austria. Under the trade name‘‘ADLER’’, the Group operates specialist clothing stores either on a stand-alone basis or as part ofspecialist stores or shopping centres. It also operates specialist clothing stores together with otherretailers at locations operated jointly. The range of goods offered by the ADLER stores includeswomenswear, menswear and kids’ wear.

The euro (c) is both the presentation currency and the functional currency of the Adler Group. Thefigures in the notes to the consolidated financial statements are quoted in thousands of euros(c’000).

Until 28 February 2011, the sole shareholder in Adler Modemarkte AG was AMODA GmbH,Haibach. The ultimate controlling company is BluO beta equity Limited, Birmingham, UnitedKingdom, whose place of management is Vienna, Austria. On 28 February 2011, the existingshareholder passed to Cheverny Investments Ltd., St. Julians/Malta.

By a resolution of Cheverny Investments Ltd., St. Julians/Malta, the sole shareholder, to reorganisethe Company dated 1 March 2011, the Company was converted by means of a change of legalform pursuant to §§ 190 et seq., 238 et seq. of the German Reorganisation of Companies Act(Umwandlungsgesetz, ‘‘UmwG’’) into a public corporation (Aktiengesellschaft) with a share capitalamounting to c15,860,000 divided into 15.86 million no-par value bearer shares with a notionalvalue of c1. The relevant entry was recorded in the commercial register on 17 March 2011.

The Adler Group also provided logistics services, including to third parties, through MOTEX Mode-Textil-Service Logistik und Management GmbH. The services comprised distribution, processing,handling, consignment, labelling, the finishing of semi-finished products and the transportation oftextile industry goods in Germany and abroad using its own and third-party vehicles. MOTEXMode-Textil-Service Logistik und Management GmbH was sold as at 30 September 2010 and istherefore no longer a member of the group of consolidated companies. The activities soldrepresent discontinued operations within the meaning of IFRS 5. In accordance with the provisionsof IFRS 5, continuing operations and discontinued operations are presented separately up to thedate of sale for the comparable period from 1 January 2010 to 31 March 2010. The individualitems reported in the income statement contain only the income and expenses attributable tocontinuing operations. The profit or loss from discontinued operations is presented in the incomestatement as a separate item. In the period from 1 January 2010 to 31 March 2011, MOTEXMode-Textil-Service Logistik und Management GmbH no longer forms part of the consolidatedgroup of companies and accordingly no discontinued operations are now presented.

II. Notes on the principles and methods employed in the consolidated financial statements

Accounting policies

The consolidated interim financial statements of Adler Modemarkte AG were prepared inaccordance with the requirements of the International Accounting Standards Board (IASB), London,in conformity with International Financial Reporting Standards (IFRS), as adopted by the EU. Theinterpretations issued by the IFRS Interpretations Committee (formerly the International FinancialReporting Interpretations Committee and the Standing Interpretations Committee) were alsoapplied. Accordingly, these consolidated interim financial statements as at 31 March 2011 wereprepared in conformity with IAS 34. Income and expenses in connection with taxes on incomewere determined on the basis of actual tax calculations.

Those provisions of International Financial Reporting Standards (IFRS) were applied that hadbecome mandatory by the balance sheet date of 31 March 2011. There was no early adoption ofstandards whose application had not yet become mandatory as at 31 March 2011.

The notes to the 2010 consolidated financial statements apply accordingly in particular with respectto the significant accounting policies adopted.

In addition, deferred tax assets in respect of tax losses incurred by Adler Modemarkte AG in theperiod from 1 January to 31 March 2011 were recognised and reported for the first time as at

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31 March 2011. In the prior-year period, a profit and loss transfer agreement and tax grouping forincome tax purposes was in place between Adler Modemarkte AG and its then sole shareholderAMODA GmbH with the result that Adler Modemarkte AG as a member of the tax group had noincome tax liability. This arrangement was terminated as at 31 December 2010.

The following items are reflected in the interim financial statements in addition to the accountingpolicies as at 31 December 2010:

Stock appreciation rights (SARs – cash-settled share-based payment) are measured at their fairvalue at the date of grant. The fair value is recorded as personnel expenses over the vestingperiod. The obligations arising from SARs are recognised as provisions and measured at their fairvalue at the interim reporting date. The expenses are recognised over the vesting period. The fairvalue of the SARs is determined on the basis of mathematical calculations and in conformity withthe business plans. Management is required to make assumptions for this purpose with respect tothe probability that particular events affecting the value will occur.

The amount of the Long Term Incentive (LTI) bonus granted in the event of a successful IPO isbased on the performance of the shares from the date of initial listing. The members of theExecutive Board have entered into a commitment to purchase shares of the Company for apredetermined amount (own investment of c750 thousand) in the event of an IPO. The Companywill grant the Executive Board five SARs, which grant the holder the right to a cash paymentdepending on the share price, for each share subscribed for. After a waiting period of three yearsfrom the date of the IPO, the SARs may be exercised in full or in part within two years providedthat the own investment can be shown to have been held for one year and the final price of theshares at the end of the waiting period is at least 30% above the issue price (= share price oninitial listing). SARs that remain unexercised expire without compensation at the end of the two-year exercise period. The payment for each SAR is derived from the difference between theaverage closing price of the shares during the last five trading days prior to the exercise date andthe issue price. The amount of the bonus is limited. The provision reported as at 31 March 2011amounted to c63 thousand and was added to personnel expenses.

Standards and interpretations applicable for the first time

The application of the following standards and interpretations revised or newly issued by the IASBwas mandatory for the first time from 1 January 2011:

Standards

IFRS 1 Limited exemption from comparative IFRS 7 disclosures for first-time adoptersIAS 24 Related party disclosuresIAS 32 Classification of rights issuesvarious Annual Improvements Project (2010)

InterpretationsIFRIC 14 Prepaid contributions with existing minimum funding requirementsIFRIC 19 Extinguishing financial liabilities with equity instruments

For more detailed information on the respective changes to the standards and interpretations,please refer to the consolidated financial statements as at 31 December 2010. The first-timeapplication of the revised standards has not resulted in any effects on the net assets, financialposition and results of operations of the Adler Group since there are no relevant items within theAdler Group.

Standards, interpretations and amendments to published standards that are not yet mandatory

The following standards, amendments to standards and interpretations have already been issuedbut are mandatory only for reporting periods beginning after 1 January 2011. These will be appliedby the Adler Group from the prescribed date and the Group has estimated the expected effects ofthe individual standards, amendments to standards and interpretations on its net assets, financialposition and results of operations, to the extent that it was possible to make such an estimate atthis stage.

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Mandatoryfrom*

Adopted by EUCommission

Standards

IFRS 1 Hyperinflation and fixed transition dates ............. 1 Jul. 2011 No

IFRS 7 Disclosures – transfers of financial assets .......... 1 Jul. 2011 No

IFRS 9 Financial instruments: classification andimpairment of financial assets ............................. 1 Jan. 2013

No

IAS 12 Income taxes ....................................................... 1 Jan. 2012 No

Interpretations

—

* Date of first-time mandatory application stipulated by the IASB. Where the standard, interpretation or amendment has alreadybeen adopted by the EU Commission, the date is the date for mandatory application stipulated by the EU.

For more detailed information on the respective changes to the standards and interpretations,please refer to the consolidated financial statements as at 31 December 2010.

First-time application will either have no effect on the net assets, financial position and resultsoperations of the Adler Group or it is not possible to estimate the effects of these changes at thepresent time.

Group of consolidated companies/shareholdings

In addition to Adler Modemarkte AG, one German subsidiary and three foreign subsidiaries inwhich Adler Modemarkte AG directly or indirectly holds the majority of the voting rights have beenincluded in the interim report as at 31 March 2011:

Name, registered officeShareholding

in %

ADLER Modemarkte Gesellschaft m.b.H., Ansfelden / Austria .................................... 100ADLER Mode S.A., Foetz / Luxembourg ..................................................................... 100ADVERS GmbH, Haibach ............................................................................................ 100Adler Asset GmbH, Ansfelden / Austria (formerly F. W. Woolworth Co. Ges.m.b.H.,

Ansfelden / Austria).................................................................................................. 100

In addition, ALASKA GmbH & Co. KG, Munich, in which the Group has no shareholding, wasincluded in the consolidated financial statements as a special purpose entity in accordance withSIC 12 on the basis of a rental agreement with Adler Modemarkte GmbH (relating to anadministration building in Haibach).

By a purchase agreement dated 17 December 2010, Adler Modemarkte Gesellschaft m.b.H.,Ansfelden / Austria, acquired all of the shares in F.W. Woolworth Co. Ges.m.b.H., Ansfelden /Austria with effect as at 31 December 2010. The name of this company was changed to AdlerAsset GmbH.

III. Other notes

1. Seasonal effects

The sales, profits and financing requirements of the Adler Group are affected by seasonalfluctuations. For example, sales and profits in the second half of the year, especially in the fourthquarter, are generally higher than in the other quarters due to the sale of winter merchandise witha higher average selling price for each product. Moreover, the product range in the spring andsummer months includes a comparatively higher proportion of cheaper products such as T-shirts.As a result of the seasonal nature of demand for clothing, Adler has peak periods for purchases ofgoods and therefore higher financing requirements in the months of February and March, andAugust and September, which is linked to increases in inventories, other receivables and otherassets, and in liabilities. Adler endeavours to reduce its peak financing requirements and also to

F-9


manage its liquidity by agreeing long-term target payment dates, with payment due in some casesonly after the products have been sold. Nevertheless, these fluctuations can have substantialnegative effects on profits during the year, which resulted in a negative result in the first quarter.This is expected to be outweighed by positive earnings in each of the second and fourth quarters.

The increase in the financial liabilities reflects additions during the year to customers’ entitlementsto discounts. Customer discounts are acquired by customers during the financial year and can beredeemed by customers at any time. The full amount of the customer discount entitlements isreflected in higher financial liabilities during the year. At the end of the financial year, unutilisedcustomer discount entitlements from the respective previous year expire. This results in a reversalof this item at the end of the financial year, since the proportion of customer discounts redeemedis expected to be lower than the accumulated entitlements.

2. Profit/loss from discontinued operations

Discontinued operations1 Jan.-

31 Mar. 20111 Jan.-

31 Mar. 2010

c’000 c’000

Income .................................................................................................. 0 7,285Expenses .............................................................................................. 0 -5,947

Operating profit before tax................................................................. 0 1,338Income taxes on operating profit........................................................... 0 -282

Operating profit after tax.................................................................... 0 1,056Gain/loss from remeasurement/disposal ............................................... 0 -2,115

Gain/loss from remeasurement/disposal after tax........................... 0 -2,115

Profit/loss from discontinued operations......................................... 0 -1,059

3. Equity

Following the resolution to reorganise the Company as a public corporation dated 1 March 2011,the subscribed capital (share capital) comprises 15,860,000 shares with a notional share of c1.00in the share capital. The subscribed capital (share capital) previously reported consisted of oneshare with a notional value of c15.86 million. Please refer also to the preliminary remarks in thisconnection.

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IV. Segment reporting

31 March 2011Stores

segmentDiscontinued

operations Total segmentsReconciliation

to IFRS Adler Group

c’000 c’000 c’000

External revenue (net).. 94,809 0 94,809 -2,904 91,906Revenue with other

segments (net)......... 0 0 0 0 0

Total revenue (net)....... 94,809 0 94,809 -2,904 91,906

Profit or loss on goodssold .......................... 43,194 0 43,194

Total costs.................... -52,777 0 -52,777

EBITDA ........................ -5,911 0 -5,911 -691 -6,602

(Reconciliation to profit or loss from operations)EBITDA ........................ -6,602

Depreciation andamortisation ............. -3,360

Impairment ................... 0

EBIT ............................. -9,962Net finance costs.......... -894Profit or loss from

operations ................ -10,856

31 March 2010Stores

segmentDiscontinued

operations Total segmentsReconciliation

to IFRS Adler Group

c’000 c’000 c’000 c’000 c’000

External revenue (net).. 86,825 1,645 88,470 -4,221 84,249Revenue with other

segments (net)......... 0 5,135 5,136 -5,135 0

Total revenue (net)....... 86,825 6,780 93,606 -9,356 84,249

Profit or loss on goodssold .......................... 41,234 5,483 46,718

Total costs.................... -47,543 -4,515 -52,058

EBITDA ........................ -3,881 1,411 -2,470 -4,929 -7,400

(Reconciliation to profit or loss from operations)EBITDA ........................ -7,400

Depreciation andamortisation ............. -3,596

Impairment ................... 0

EBIT ............................. -10,996Net finance costs.......... -326Profit or loss from

operations ................ -11,322

There has been no change in the breakdown of the Adler Group’s individual segments comparedwith 31 December 2010. The discontinued operations were sold as at 30 September 2010 and aretherefore no longer included in the interim financial statements as at 31 March 2011.

F-11


The breakdown of the non-current assets, defined as intangible assets, property, plant andequipment and investment property, by region is as follows:

31 March 2011 31 March 2010

Germany International Group Germany International Group

c’000 c’000 c’000 c’000 c’000 c’000

Non-current assets 38,273 18,932 57,205 43,912 19,336 63,248

V. Related party disclosures

Companies controlled by the shareholder Cheverny Investments Ltd., St. Julians/Malta, and itsshareholders or legal representatives qualify as related parties. The parent companies areCheverny Investments Ltd., St. Julians/Malta, bluO Finance Ltd., St. Julians/Malta, bluO MaltaHolding Ltd., St. Julians/Malta and bluO SICAV-SIF, Luxembourg.

MOTEX Mode-Textil-Service Logistik and Management GmbH was deconsolidated as at30 September 2010. Since that date, this company has been an affiliated company.

Transactions with related parties are contractually agreed and carried out at prices that have alsobeen agreed with third parties.

The term ‘‘affiliated companies’’ refers to all companies controlled by the ultimate parent companyof the Adler Group.

The following transactions were entered into with related parties:

1 Jan.-31 Mar. 2011

1 Jan.-31 Mar. 2010

c’000 c’000

Purchases of services from affiliated companies .................................. 4,737 294

4,737 294

IPO costs recharged to parent company .............................................. 905 0Sales of services to affiliated companies .............................................. 17 0Interest income from affiliated companies............................................. 0 730

922 730

The following balances with related parties were outstanding at the balance sheet dates:

31 Mar. 2011 31 Dec. 2010

c’000 c’000

Trade receivables due from affiliated company .................................... 1,192 1,258Receivables due from parent company................................................. 905 0

2,097 1,258

Liabilities to parent company................................................................. 3,446 3,968Liabilities to affiliated company ............................................................. 2,450 0Loan liabilities to affiliated company...................................................... 0 50

5,896 4,018

Family members of key management personnel provided services to the Adler Group in an amountof c11 thousand (1 Jan. 2010 – 31 Mar. 2010: c5 thousand). Payment for the services was madeon normal market terms. In addition, items of property, plant and equipment amounting to c10thousand (1 Jan. 2010 – 31 Mar. 2010: c133 thousand) were sold to companies controlled byfamily members of key management personnel. The sale was made on normal market terms.

The loan liability to an affiliated company as at 31 December 2010 was a loan with a short-termmaturity bearing interest at 1.1%. The loan was repaid in February 2011.

F-12


Interest income of c730 thousand arose during the period 1 January 2010 – 31 March 2010 inrespect of loans extended to an affiliated company. Please refer to the consolidated financialstatements as at 31 December 2010.

For information relating to the remuneration of the Executive Board, please refer to the detailsgiven under ‘‘Accounting policies’’.

Haibach, 3 May 2011

Lothar Schafer Jochen Strack Thomas WankeMember of the Executive Board Member of the Executive Board Member of the Executive Board

F-13


Audited consolidated financial statementsof Adler Modemarkte GmbH

as at 31 December 2010 (IFRS)

F-14


Consolidated income statement for the financial year from1 January 2010 to 31 December 2010

NotesNo. 2010 2009*

c’000 c’000

Revenue ....................................................................................... 1 444,809 405,846Other operating income ................................................................ 2 8,172 17,709Cost of materials .......................................................................... 3 -210,360 -205,277Personnel expenses ..................................................................... 4 -74,996 -80,553Other operating expenses ............................................................ 5 -129,776 -125,251

EBITDA ........................................................................................ 37,849 12,474

Depreciation and amortisation ...................................................... 6 -13,565 -15,521Impairment.................................................................................... 6 0 -2,322

EBIT ............................................................................................. 24,284 -5,369

Other interest and similar income................................................. 3,538 1,919Interest and similar expenses....................................................... -4,121 -5,022

Net finance costs........................................................................ 7 -583 -3,103

Profit/loss from operations........................................................ 23,701 -8,472

Income taxes ................................................................................ 8 4,778 -149

Profit/loss from continuing operations .................................... 28,479 -8,621

Profit/loss from discontinued operations ................................ 9 -1,057 1,343

Consolidated net profit (+)/loss (-) for the year....................... 27,422 -7,278

of which attributable to shareholders of Adler Modemarkte GmbH 27,422 -7,278

Earnings per share (continuing operations)............................ 35Undiluted in c’000 ..................................................................... 28,479 -8,621Diluted in c’000 ......................................................................... 28,479 -8,621

Earnings per share (discontinued operations)........................ 35Undiluted in c’000 ..................................................................... -1,057 1,343Diluted in c’000 ......................................................................... -1,057 1,343

Consolidated statement of comprehensive incomefor the financial year from 1 January to 31 December 2010

NotesNo. 2010 2009*

c’000 c’000

Consolidated net profit (+)/loss (-) for the year .................. 27,422 -7,278

Other comprehensive income................................................... 0 0

Consolidated total comprehensive income ......................... 27,422 -7,278

of which attributable to shareholders of Adler ModemarkteGmbH ................................................................................... 27,422 -7,278

* adjusted prior-year figures

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Consolidated balance sheetas at 31 December 2010

ASSETSNotes

No.31 Dec.

201031 Dec.

2009

c’000 c’000

Non-current assetsIntangible assets .............................................................................. 10 2,994 2,560Property, plant and equipment......................................................... 11 52,215 63,760Investment property ......................................................................... 12 3,374 3,374Other receivables and other assets ................................................. 13 649 707Deferred tax assets.......................................................................... 15 8,269 2,243

Total non-current assets ............................................................... 67,501 72,644

Current assetsInventories ....................................................................................... 16 56,749 53,600Trade receivables ............................................................................ 17 1,338 602Other receivables and other assets ................................................. 13 3,908 41,132Available-for-sale financial assets .................................................... 14 263 0Cash and cash equivalents.............................................................. 18 32,956 36,991

Total current assets....................................................................... 95,214 132,325

Total ASSETS ................................................................................. 162,715 204,969

EQUITY and LIABILITIESNotes

No.31 Dec.

201031 Dec.

2009

c’000 c’000

EQUITYCapital and reservesSubscribed capital............................................................................ 15,860 15,860Capital reserves ............................................................................... 101,001 138,157Net accumulated losses ................................................................... -75,694 -84,743

Total equity..................................................................................... 19 41,167 69,274

LIABILITIESNon-current liabilitiesProvisions for pensions and other employee benefits ..................... 20 4,607 3,323Other provisions ............................................................................... 21 1,044 904Financial liabilities ............................................................................ 22 4,360 4,802Finance lease obligations................................................................. 23 36,277 45,178Other liabilities ................................................................................. 25 249 0Deferred tax liabilities....................................................................... 15 628 313

Total non-current liabilities........................................................... 47,165 54,520

Current liabilitiesOther provisions ............................................................................... 21 2,792 4,661Financial liabilities ............................................................................ 22 14,213 13,572Finance lease obligations................................................................. 23 9,762 9,008Trade payables ................................................................................ 24 27,829 33,135Other liabilities ................................................................................. 25 19,502 19,553Income tax liabilities......................................................................... 26 285 1,246

Total current liabilities .................................................................. 74,383 81,175

Total liabilities ................................................................................ 121,548 135,695

Total EQUITY and LIABILITIES..................................................... 162,715 204,969

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Consolidated statement of changes in equityfor the financial year from 1 January 2010 to 31 December 2010

Notes

No.

Subscribed

capital

Capital

reserves

Net

accumulated

losses

Total

equity

c’000 c’000 c’000 c’000

As at 01 Jan. 2009 ................................... 15,860 85,057 -75,371 25,546Income subsidies from shareholders ......... 0 14,500 0 14,500Contribution to capital reserves ................. 0 38,600 0 38,600

Transfer to shareholders............................ 0 0 -2,094 -2,094

Total transactions with shareholders .... 0 53,100 -2,094 51,006

Consolidated net loss for the year1............ 0 0 -7,278 -7,278

Consolidated total comprehensiveincome1 ..................................................... 0 0 -7,278 -7,278

As at 31 Dec. 2009 ................................... 15,860 138,157 -84,743 69,274

As at 01 Jan. 2010 ................................... 15,860 138,157 -84,743 69,274

Withdrawals from capital reserves ............. 0 -39,228 0 -39,228Income subsidies from shareholders ......... 0 500 0 500Additions to capital reserves ...................... 0 1,572 0 1,572Transfer to shareholders............................ 0 0 -18,373 -18,373

Total transactions with shareholders .... 0 -37,156 -18,373 -55,529

Consolidated net profit for the year1 .......... 0 0 27,422 27,422

Consolidated total comprehensiveincome1 ..................................................... 0 0 27,422 27,422

As at 31 Dec. 2010 ................................... 19 15,860 101,001 -75,694 41,167

1 Since there are no items of other comprehensive income, the consolidated net profit or loss for the year is the same asconsolidated total comprehensive income.

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Consolidated statement of cash flows for the financial year from1 January 2010 to 31 December 2010

NotesNo. 2010 2009

c’000 c’000

Consolidated profit (+)/loss (-) for the year before tax ............... 22,935 -7,101(+) Depreciation and amortisation on property, plant and equipmentand intangible assets ........................................................................ 14,124 16,218(+) Impairment losses ....................................................................... 2,664 2,394Decrease (-) in pension provisions ................................................... -197 -225Losses (+) from the sale of non-current assets ................................ 516 325Other non-cash income (-) and expenses (+)................................... 10,311 14,230Net finance costs .............................................................................. 581 3,141Interest received ............................................................................... 139 264Interest paid ...................................................................................... -168 -205Income taxes paid............................................................................. -462 -82Decrease (+)/increase (-) in inventories............................................ -2,024 7,617Decrease (+)/increase (-) in trade receivables and other receivables -179 5,246Decrease (-) in trade payables, other liabilities and other provisions -22,310 -34,599Decrease (-) in other balance sheet items........................................ -130 -31

Net cash from (+)/used in (-) operating activities (Net cashflow) 27 25,800 7,192

Proceeds from disposals of non-current assets................................ 572 908Payments for investments in non-current assets .............................. -4,418 -3,750Cash outflow from sales of companies (net of cash disposed of) .... -376 0Payments for acquisitions of companies (net of cash acquired) -237 0Payments for short-term deposits ..................................................... -12,300 -35,000

Net cash from (+)/used in (-) investing activities ........................ 27 -16,759 -37,842

Free cashflow .................................................................................. 27 9,041 -30,650

Cash flows from the issue (+) of current financial liabilities.............. 57 0Losses assumed by shareholders .................................................... 0 2,780Repayments of borrowings ............................................................... -240 -222Capital contributions by shareholders ............................................... 0 53,100Payments in connection with finance lease liabilities ....................... -12,893 -13,234

Net cash from (+) / used in (-) financing activities ...................... 27 -13,076 42,424

Net decrease (-) / increase (+) in cash and cash equivalents .... 27 -4,035 11,774

Cash and cash equivalents at beginning of the period..................... 36,991 25,217Cash and cash equivalents at end of the period .............................. 32,956 36,991

Net decrease (-) / increase (+) in cash and cash equivalents .... 27 -4,035 11,774

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Notes to the consolidated financial statementsas at 31 December 2010


Adler Modemarkte GmbH is a corporation (Kapitalgesellschaft) in accordance with German law andits registered office is at Industriestrasse 1-5, Haibach, Federal Republic of Germany. The relevantregistration court is located in Aschaffenburg.

Its financial year is the calendar year. The financial years of all the companies included in theconsolidated financial statements also end on 31 December of the calendar year.

The consolidated financial statements were prepared by the management on 28 February 2011and authorised for publication.

The Adler Group (Adler Modemarkte GmbH and its subsidiaries) is engaged in apparel retailingand operates specialist clothing stores in Germany, Luxembourg and Austria. Under the tradename ‘‘ADLER’’, the Group operates specialist clothing stores either on a stand-alone basis or aspart of specialist store or shopping centres. It also operates specialist clothing stores together withother retailers at locations operated jointly. The range of goods offered by the ADLER storesincludes womenswear, menswear and kidswear.

The euro (c) is both the presentation currency and the functional currency of the Adler Group. Thefigures in the notes to the consolidated financial statements are quoted in thousands of euros(c’000).

As at 31 December 2010, the sole shareholder in Adler Modemarkte GmbH is AMODA GmbH,Haibach. The ultimate controlling company is BluO beta equity Limited, Birmingham, UnitedKingdom, whose place of management is Vienna, Austria.

The Adler Group also provided logistics services, including to third parties, through MOTEX Mode-Textil-Service Logistik und Management GmbH. The services comprised distribution, processing,handling, consignment, labelling, the finishing of semi-finished products and the transportation oftextile industry goods in Germany and abroad using its own and third-party vehicles. MOTEXMode-Textil-Service Logistik und Management GmbH was sold as at 30 September 2010 and istherefore no longer a member of the group of consolidated companies. The activities soldrepresent discontinued operations within the meaning of IFRS 5. In accordance with the provisionsof IFRS 5, continuing operations and discontinued operations are presented separately. Theindividual items reported in the income statement contain only the income and expensesattributable to continuing operations. The profit or loss from discontinued operations is presented inthe income statement as a separate item. The prior-year figures in the income statement and all ofthe detailed information presented in the notes have been adjusted accordingly and now alsodistinguish between continuing operations and discontinued operations. No other adjustments havebeen made to the prior-year figures.


Accounting policies

The consolidated financial statements of Adler Modemarkte GmbH were prepared in accordancewith the requirements of the International Accounting Standards Board (IASB), London, inconformity with International Financial Reporting Standards (IFRS), as adopted by the EU. Theinterpretations issued by the IFRS Interpretations Committee (formerly the International FinancialReporting Interpretations Committee and the Standing Interpretations Committee) were alsoapplied. The consolidated financial statements conform to the directives relating to consolidatedaccounts issued by the European Union (Directive 83/349/EEC). In order to ensure equivalencewith consolidated financial statements prepared in accordance with the German Commercial Code(Handelsgesetzbuch, ‘‘HGB’’), all of the disclosures and explanations required by § 315a HGB overand above the requirements of the IASB have also been provided. The consolidated financialstatements in the form in which they are presented here comply with the provisions of § 315aHGB; those provisions constitute the legal basis for the preparation of consolidated accounts inaccordance with international accounting standards in Germany in conjunction with Regulation (EC)No. 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the applicationof international accounting standards.

F-19


Those International Financial Reporting Standards (IFRS) were applied that had become mandatoryby the balance sheet date 31 December 2010. There was no early adoption of standards whoseapplication had not yet become mandatory as at 31 December 2010.

Standards and interpretations applicable for the first time

The application of the following standards and interpretations revised or newly issued by the IASBwas mandatory for the first time from the start of financial year 2010:

Standards

IFRS 1 Additional exemptions for first-time adoptersIFRS 2/IFRIC 11 Group cash-settled share-based payment transactionsIFRS 3 Business combinationsIAS 27 Consolidated and separate financial statementsIAS 39 Financial instruments: recognition and measurement: eligible hedged itemsIAS 39/IFRS 7 Reclassification of financial assets – effective date and transitional provisionsvarious Annual improvements project (2009)

Interpretations

IFRIC 12 Service concession arrangements

IFRIC 15 Agreements for the construction of real estateIFRIC 16 Hedges of a net investment in a foreign operationIFRIC 17 Distributions of non-cash assets to ownersIFRIC 18 Transfers of assets from customers

* The amendments to IFRS 1 included additional exemptions for first-time adopters of IFRS.The amendments relate to the retrospective application of IFRS in particular circumstancesand are intended to ensure that entities do not incur disproportionately high costs inconverting to IFRS. Specifically, the amendments exempt

* entities in the oil and gas industry that have recorded exploration and development costsfor sites in the development or production phases in a geographical region on acombined basis in cost centres in line with national accounting requirements from theobligation to apply IFRS retrospectively in full to the relevant oil and gas assets, and

* entities with existing leasing contracts from the need to reassess these contracts withrespect to their classification in accordance with IFRIC 4 ‘‘Determining whether anArrangement Contains a Lease’’, if a determination in accordance with nationalaccounting requirements that are similar to the provisions of IFRIC 4 has already beenmade at an earlier balance sheet date.

The Adler Group is not a first-time adopter of IFRS in these present consolidated financialstatements. The amendments to IFRS 1 are therefore not relevant for the Adler Group.

* The amendments to IFRS 2/IFRIC 11 ‘‘Share-based Payment’’ are intended to clarify theaccounting treatment of cash-settled share-based payments within a group. The amendmentsmade clear that:

* An entity that receives goods or services in a share-based payment arrangement mustaccount for those goods or services irrespective of which entity in the group settles therelated obligation and whether the obligation is settled in shares or cash.

* In IFRS 2 a ‘group’ has the same meaning as in IAS 27 ‘‘Consolidated and SeparateFinancial Statements’’, that is, it includes only the parent company and its subsidiaries.

The amendments clarify the scope of IFRS 2 and the interaction of IFRS 2 with otherstandards. No items of this nature are currently present within the Adler Group. The first-timeapplication of IFRS 2 therefore had no effects on the net assets, financial position and resultsof operations of the Adler Group.

* The new IFRS 3 (R) includes provisions relating to the scope of the standard, thecomponents of the purchase price, the treatment of non-controlling interests and goodwill, andalso to the extent of the assets, liabilities and contingent liabilities required to be recognised.The standard also contains requirements for the accounting treatment of losses broughtforward and for the classification of contracts to which the acquiree is party. The revised

F-20


standard retains the use of the acquisition method for business combinations but introducesmaterial changes to the determination of the cost of acquisition. The first-time application ofIFRS 3 (R) to the business disposal that took place in the current financial year had noeffects on the net assets, financial position and results of operations of the Adler Group.

* The revised standard IAS 27 (R) ‘‘Consolidated and Separate Financial Statements’’prescribes the mandatory application of the economic entity approach for the accountingtreatment of purchases and sales of shares that take place after control is obtained and thatdo not result in a loss of control. Under this approach, minority transactions of this type areregarded as transactions with owners and recorded within equity. In the case of share salesresulting in a loss of control, any gain or loss on disposal is recorded in the incomestatement. If shares continue to be held following the loss of control, the shares retained arerecognised at their fair value. The difference between the previous carrying amount of theshares retained and their fair value is reported in profit or loss as part of the gain or loss ondisposal and must be disclosed separately in the notes together with the correspondingremeasured amount of the shares retained. In the case of step acquisitions or partialdisposals of shares, the standard requires the shares already held or the shares retained,respectively, to be remeasured at fair value through profit or loss. In addition, lossesattributable to noncontrolling interests which result in the noncontrolling interests having adeficit balance must be presented in future as negative carrying amounts within consolidatedequity. The new provisions of IAS 27 were not applicable to the business disposal that tookplace in financial year 2010. The first-time application of IAS 27 (R) therefore had no effectson the net assets, financial position and results of operations of the Adler Group.

* The amendments to IAS 39 ‘‘Financial Instruments: Recognition and Measurement’’ – eligiblehedged items set out:

* the conditions under which inflation risks can be designated as a hedged item forhedging purposes, and

* the possibility of using options as a hedging instrument for hedging one-sided risks.

The first-time application of the amendments was not relevant to the Adler Group andtherefore had no effect on its net assets, financial position or results of operations.

* IFRIC 12 deals with the accounting treatment of certain service concession arrangementswhere a public-sector body contracts with a private operator. This interpretation does notapply to the Adler Group since there are no items of the relevant kind.

* IFRIC 15 makes clear in what circumstances agreements for the construction of real estateare subject to the provisions of IAS 11 or of IAS 18. IFRIC 15 also contains guidance onwhen revenue should be recognised in the case of agreements for the construction of realestate that fall within the scope of IAS 18. This interpretation does not apply to the AdlerGroup since there are no items of the relevant kind.

* IFRIC 16 clarifies what should be regarded as the risk in the hedge of a net investment in aforeign operation and which entity within a group can hold the hedging instrument used toreduce this risk. This interpretation does not apply to the Adler Group since there are noitems of the relevant kind.

* IFRIC 17 clarifies and explains the accounting treatment of non-cash dividends to owners ofan entity. This interpretation does not apply to the Adler Group since there are no items ofthe relevant kind.

* IFRIC 18 clarifies and explains the accounting treatment for the transfer from a customer ofitems of property, plant and equipment or of cash for the construction or purchase of an itemof property, plant and equipment. This interpretation does not apply to the Adler Group sincethere are no items of the relevant kind.

* The IASB publishes annual improvements to existing standards. These consist of minorchanges in the majority of cases. The changes resulting from the 2009 Annual ImprovementsProject, which mainly apply as at 1 January 2010, are not presented here on the grounds thatthey are not material. First-time application of the revised standards had no effects on the netassets, financial position or results of operations of the Adler Group.

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The following standards, amendments to standards and interpretations have already been issuedbut are mandatory only for reporting periods beginning after 1 January 2010. These will be appliedby the Adler Group from the prescribed date and the Group has estimated the expected effects ofthe individual standards, amendments to standards and interpretations on its net assets, financialposition and results of operations, to the extent that it was possible to make such an estimate atthis stage.

Mandatoryfrom*

Adopted by EUCommission

StandardsIFRS 1 Limited exemption from comparative IFRS 7

disclosures for first-time adopters ....................... 1 Jul. 2010 YesIFRS 1 Hyperinflation and fixed transition dates ............. 1 Jul. 2010 NoIFRS 7 Disclosures – transfers of financial assets .......... 1 Jul. 2011 NoIFRS 9 Financial instruments: classification and

impairment of financial assets ............................. 1 Jan. 2013 NoIAS 12 Income taxes ....................................................... 1 Jan. 2012 NoIAS 24 Related party disclosures .................................... 1 Jan. 2011 YesIAS 32 Classification of rights issues .............................. 1. Feb. 2010 Yesvarious Annual Improvements Project (2010) .................. mostly

1. Jan. 2011Yes

InterpretationsIFRIC 14 Prepaid contributions with existing minimum

funding requirements........................................... 1. Jan. 2011 YesIFRIC 19 Extinguishing financial liabilities with equity

instruments .......................................................... 1 Jul. 2010 Yes


* The amendment to IFRS 1 in the course of the amendments to IFRS 7 exempts first-timeadopters of IFRS from certain disclosures in the notes introduced in IFRS 7. The amendmentto IFRS 1 now also grants entities applying IFRS for the first time an optional exemption fromthe requirement to present comparative information for measurements at fair value and forliquidity risk. IFRS 7 permits these exemptions in cases where the comparable periods endprior to 31 December 2009. This ensures that first-time adopters of IFRS also benefit fromthe transitional provisions for the application of the revised IFRS 7. The amendments to IFRS1 and IFRS 7 must be applied at the latest from the start of the first financial year beginningafter 30 June 2010.

* The amendments to IFRS 7 published in October 2010 result in a broad alignment of thecorresponding disclosure requirements under International Financial Reporting Standards(IFRS) and US Generally Accepted Accounting Principles (US GAAP). The amendments toIFRS 7 relate to expanded disclosure requirements for the transfer of financial assets and areintended to allow users of financial statements to improve their understanding of the effects ofthe risks remaining with the transferring entity. Application of the amendments is mandatoryfor financial years beginning on or after 1 July 2011. Earlier application is permitted. Thepresentation of comparative information is optional in the first year of application. The AdlerGroup is not in a position to estimate the effects of these amendments at the present time.

* IFRS 9 ‘‘Financial Instruments: Classification and Measurement’’ was published in November2009 (IFRS 9 2009). This standard forms part of the project to replace IAS 39, intended to becompleted in 2010. The standard deals with the classification and measurement of financialassets. As a result of IFRS 9, the existing measurement categories loans and receivables,held-to-maturity investments, available-for-sale financial assets and financial assets at fairvalue through profit or loss are replaced by two categories: assets measured at amortisedcost and those measured at fair value. The determination whether a financial instrument canbe classified as measured at amortised cost depends both on the entity’s business model, i.e.how the entity manages its financial instruments, and on the product characteristics of theparticular instrument. Financial instruments that do not meet the criteria for inclusion in theamortised cost category must be measured at fair value through profit or loss. Measurementat fair value directly in equity is permitted for selected equity instruments. The characteristics

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of this new category are not the same as those of the existing category ‘‘available-for-salefinancial assets’’. IFRS 9 (2009) contains no provisions relating to the measurement offinancial liabilities. IFRS 9 (2010) was published as a supplement to IFRS 9 (2009) in October2010. IFRS 9 (2010) contains additional provisions to those of IFRS 9 (2009) relating to theclassification and measurement of financial liabilities and to the derecognition of financialassets and liabilities. IFRS 9 (2010) contains no significant changes for financial liabilities,with the exception of the fair value option. Under the fair value option, changes in fair valueas a result of the entity’s own credit risk are recorded in other comprehensive income, whileall other changes in fair value are reported in profit or loss (one-step approach). With respectto derecognition, IFRS 9 (2010) incorporates the provisions of IAS 39 currently in force. IFRS9 is effective for financial years beginning on or after 1 January 2013. Earlier applicationstarting in 2009 is permitted. The application of these amendments within the EU still requiresendorsement by the prescribed EU process. The Adler Group is not a position to estimate theeffects of the new standard at the present time.

* In December 2010 the International Accounting Standards Board (IASB) publishedamendments to IAS 12 Income Taxes. These amendments also entail changes to the scopeof SIC-21 Income Taxes – Recovery of Revalued Non-Depreciable Assets. The amendmentpartially clarifies the treatment of temporary taxable differences in connection with the use ofthe fair value model prescribed by IAS 40. The amendment provides that it will normally beassumed that taxable differences will reverse as a result of a sale of the underlying asset.The amendment is applicable retrospectively for financial years beginning on or after 1January 2012. First-time application of the amendment will not have any effects on the netassets, financial position or results of operations of the Adler Group.

* The amendments to IAS 24 were published in November 2009. The changes affectinggovernment-related entities will not have any effects on the presentation of the financialinformation. The amendments to IAS 24 also clarified the definition of a related party. Therevised standard is effective for reporting periods beginning or after 1 January 2011. Earlierapplication is permitted. The Adler Group is not a state-controlled entity and does notanticipate any effects on the presentation of its financial information resulting from theamendments to IAS 24.

* Amendments to IAS 32 ‘‘Financial Instruments: Presentation’’. The amendments prescribe theaccounting treatment in the financial statements of the issuer for subscription rights, optionsand warrants for the purchase of a fixed number of equity instruments that are denominatedin a currency other than the functional currency of the issuer. Previously, such cases wereaccounted for as derivative liabilities. Subscription rights that are issued pro rata to theexisting shareholders of an entity for a fixed amount of currency must be classified as equity.The currency in which the exercise price is denominated is irrelevant for this purpose. TheAdler Group does not anticipate that the first-time application of the revised standard will haveany effects on its net assets, financial position and results of operations and expects that thematters addressed will not apply to the Adler Group since there are no items of the relevantkind.

* The IASB publishes annual improvements to existing standards. These consist of minorchanges in the majority of cases. The changes resulting from the 2010 Annual ImprovementsProject are not presented here on the grounds that they are not material. The Adler Groupwill apply the changes as at 1 January 2011 (2010 Annual Improvements Project). It is notpossible to make an estimate of the effects on the net assets, financial position or results ofoperations of the Group and the presentation of its financial information at the present time.The changes will be applied once they have been endorsed.

* Amendment to IFRIC 14 ‘‘The Limit on a Defined Benefit Asset, Minimum FundingRequirements and their Interaction’’. The amendment to IFRIC 14 applies in the rare cases inwhich an entity is subject to minimum funding requirements and makes prepaid contributionsin order to meet those requirements. The amendment allows the entities in these cases torecord the benefit of such prepayments as an asset. This interpretation does not apply to theAdler Group since there are no items of the relevant kind.

* IFRIC 19: ‘‘Extinguishing Financial Liabilities with Equity Instruments’’. IFRIC 19 explains therequirements of IFRS where an entity extinguishes all or part of a financial liability by meansof the issue of shares or other equity instruments. The interpretation makes clear that the

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equity instruments issued to a creditor for the purpose of extinguishing a financial liabilityrepresent ‘‘consideration paid’’ in accordance with IAS 39.41 and that the relevant equityinstruments must be measured in principle at fair value. If the fair value cannot be reliablydetermined, the equity instruments must be measured at the fair value of the liabilityextinguished and the difference between the carrying amount of the financial liabilityderecognised and the amount at which the equity instruments issued were initially recognisedmust be reported in the income statement. This interpretation does not apply to the AdlerGroup since there are no items of the relevant kind.

These consolidated financial statements are based on the historical cost principle. Available-for-salefinancial assets and investment property are accounted for at fair value. The income statement wasprepared using the nature of expense method. Items in the consolidated balance sheet areclassified according to their maturities. Assets and liabilities falling due within one year are reportedas current. Assets and liabilities are classified as non-current if they remain within the Group forlonger than one year. Trade receivables and payables and also inventories are of an exclusivelyshort-term nature and are therefore reported under the current items.

The accounting policies set out below were applied for the purpose of preparing the consolidatedfinancial statements.


In addition to Adler Modemarkte GmbH, one German subsidiary and three foreign subsidiaries inwhich Adler Modemarkte GmbH directly or indirectly holds the majority of the voting rights havebeen included in the consolidated financial statements:


in % Currency

Subscribedcapital in

localcurrency inthousands

ADLER Modemarkte Gesellschaft m.b.H., Ansfelden /Austria ........................................................................ 100 EUR 37

ADLER Mode S.A., Foetz / Luxembourg........................ 100 EUR 31ADVERS GmbH, Haibach .............................................. 100 EUR 25F. W. Woolworth Co. Ges.m.b.H., Ansfelden / Austria... 100 EUR 5,087

ALASKA GmbH & Co. KG, Munich, in which the Group has no shareholding, has also beenincluded in the consolidated financial statements as a special purpose entity in accordance withSIC-12 on the basis of a rental agreement with ADLER Modemarkte GmbH (relating to anadministration building in Haibach).

Adler Ateliermoden GmbH, which was included in the group of consolidated companies in theprevious year, was merged with ADVERS GmbH with effect as at 30 June 2010, on the basis of amerger agreement dated 29 December 2010 entered in the commercial register of the absorbingcompany on 17 January 2011. The merger did not give rise to any effects on the net assets,financial position or results of operations of the Adler Group. ADVERS Versicherungsmakler GmbHprovided insurance broking services for the Adler Group until it ceased its operating businessactivities at the end of 2008. Since the beginning of 2009, the company has been used to processthe Adler Group’s cash pooling transactions. ADVERS Versicherungsmakler GmbH was renamedADVERS GmbH by means of a change to its Articles of Association, entered in the relevantcommercial register on 19 May 2010 and published on 26 May 2010.

Adler Modemarkte GmbH sold its shareholding in MOTEX Mode-Textil-Service Logistik undManagement GmbH, Horselgau as at 30 September 2010. The date of deconsolidation was thesame as the date of sale.

Adler Modemarkte Gesellschaft m.b.H., Ansfelden / Austria, acquired all of the shares in F.W.Woolworth Co. Ges.m.b.H., Ansfelden / Austria with effect as at 31 December 2010 on the basisof a purchase agreement dated 17 December 2010. The company was renamed Adler AssetGmbH at the time of preparation of the financial statements.

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Consolidation principles

Subsidiaries are all companies (including special purpose entities) in which the Group has thepower to govern the financial and operating policies and generally holds more than 50% of thevoting rights. In assessing whether control exists, the existence and effect of potential voting rightsthat are currently exercisable or convertible are taken into account where relevant. Subsidiaries areincluded in the consolidated financial statements from the date on which control is obtained by theGroup (full consolidation). They are no longer consolidated from the date on which control is lost.

The financial statements of the German and foreign subsidiaries included in the consolidatedfinancial statements are prepared using uniform accounting policies in accordance with IAS 27.

Intra-Group profits and losses, revenues and income and expenses are eliminated, together withreceivables and liabilities existing between subsidiaries consolidated. Receivables and liabilities tothe same third-party company are offset where the relevant conditions are met. Intercompanyprofits are eliminated. Deferred tax assets and liabilities are recognised in respect of temporarydifferences arising from consolidation adjustments in accordance with IAS 12 (Income Taxes).

Special purpose entities are set up to achieve a particular purpose and must be consolidated if theGroup is able to exercise control over the special purpose entity. This is assessed on the basis ofthe following criteria:

* Are the activities of the special purpose entity being conducted according to the Group’sspecific needs so that the Group obtains benefits from the activities of the specialpurpose entity

* Does the Group have the decision-making powers to obtain the majority of the benefitsof the special purpose entity’s activities

* Does the Group have the right to obtain the majority of the benefits of the specialpurpose entity’s activities and is it therefore potentially exposed to risks incident to thespecial purpose entity’s activities

* Does the Group retain the majority of the residual or ownership risks related to thespecial purpose entity or its assets in order to obtain benefits from its activities.

If the existence of control is established in this way, the special purpose entity is included in theconsolidated financial statements.

Consolidation of subsidiaries

Subsidiaries acquired are accounted for using the acquisition method. The cost of the acquisition isthe fair value of the assets given, the equity instruments issued and the liabilities incurred orassumed at the date of the transaction plus costs directly attributable to the acquisition. Theacquiree’s identifiable assets, liabilities and contingent liabilities in a business combination aremeasured on initial consolidation at their fair values at the date of the transaction, irrespective ofthe extent of any minority interests.

Any excess of the cost of acquisition over the Group’s share of the net assets measured at fairvalue is recognised as goodwill; if the cost of the acquisition is lower than the net assets of thesubsidiary acquired measured at fair value, the difference is recognised immediately in profit orloss.

Company acquisitions

Adler Modemarkte Gesellschaft m.b.H., Ansfelden / Austria acquired all of the shares in F.W.Woolworth Co. Ges.m.b.H., Ansfelden / Austria as at 31 December 2010. The transactionrepresents a business combination under common control. Such transactions are accounted forwithin the Adler Group in accordance with the provisions of IFRS 3 Business combinations. TheAdler Group uses the purchase method for the purpose of accounting for business combinations.The consideration paid is equal to the fair value at the date of the acquisition of the assets given,the liabilities assumed and the equity instruments issued. Incidental costs of the acquisition areexpensed. The acquiree’s identifiable assets, liabilities and contingent liabilities in a businesscombination are measured on initial consolidation at their fair values at the date of the transaction.The excess of the consideration paid, the amount of all non-controlling interests and the fair valueof the share of the acquiree’s equity held prior to the acquisition over the fair value of the netassets at the date of acquisition is recognised as goodwill. If the consideration paid is less than thefair value of the net assets of the subsidiary acquired, the difference is recognised directly in profit

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or loss as income, once the identification and measurement of the net assets and themeasurement of the cost of the acquisition have been reassessed. For further details, please seeNote 30 Company acquisitions.

Currency translation

Business transactions in foreign currencies in the separate financial statements of subsidiariesprepared in euros are measured at the rate of exchange at the date when the transaction isinitially recorded. Exchange rate gains and losses arising up to the balance sheet date from thetranslation of receivables and liabilities are reflected in the financial statements; gains and lossesresulting from movements in exchange rates are reported in profit or loss.

III. Accounting policies

The accounting policies are applied in principle on a consistent basis.

Non-current assets and depreciation and amortisation

* Goodwill

Goodwill arising on consolidation represents the excess of the cost of a company acquisition overthe Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities ofa subsidiary. In accordance with IFRS 3 Business combinations, goodwill is not amortised. Instead,in accordance with IAS 36 Impairment of assets, it is tested for impairment annually and wheneverthere are indications of possible impairment and, where necessary, written down to the recoverableamount. The impairment charge is recognised immediately in profit or loss. Impairment lossesrecognised in respect of goodwill may not be reversed in subsequent periods. For the purpose ofimpairment testing, goodwill is allocated to cash-generating units. The allocation is made to thosecash-generating units or groups of cash-generating units which are expected to benefit from thesynergies of the underlying business combination.

* Other intangible assets

Purchased intangible assets are recognised at cost.

All purchased intangible assets with finite useful lives are amortised on a straight-line basis.Amortisation is based on the following economic useful lives applied consistently across the Group:

* concessions, rights, licences: 3 to 7 years or the shorter contractual term where relevant

* software: 3 to 5 years

Internally generated intangible assets mostly comprise software. Costs associated with theoperation or maintenance of software are expensed when incurred. Costs incurred directly inconnection with the production of identifiable individual software products over which the Group hascontrol are recognised as an intangible asset if it is regarded as probable that the intangible assetwill generate future economic benefits, is technically feasible and if the costs can be reliablydetermined. The directly attributable costs include personnel costs for the employees involved indevelopment and other costs directly attributable to the development of software. Capitaliseddevelopment costs for computer software with a finite useful life are amortised on a straight-linebasis over the period of its expected use but subject to a maximum of five years.

If impairment in excess of the amortisation charged is identified, the asset is written down to therecoverable amount.

There were no other intangible assets with indefinite useful lives during the period under review.

* Property, plant and equipment

Items of property, plant and equipment used in the operation of the business for more than oneyear are measured at cost less depreciation. Significant components of an item of property, plantand equipment are recognised and depreciated separately. Subsequent costs are recognised as acomponent of the cost of the asset only if it is probable that future economic benefits will flow tothe Group as a result and if the costs can be reliably determined. All other repair and maintenanceexpenses are recognised as expenses in the income statement in the financial year in which theyare incurred.

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Depreciation is not charged on land. For all other assets depreciation is charged on a straight-linebasis over the following expected useful lives of the assets:

– buildings including investment property: 33 years

– operating facilities: 3 to 10 years

– operating and office equipment: 3 to 10 years

– vehicles: 4 to 6 years

– lessee’s fixtures: 10 years.

The carrying amounts and useful economic lives are reviewed at each balance sheet date andadjusted where necessary. If the carrying amount of an asset is higher than its estimatedrecoverable amount, it is immediately written down to the latter. Gains and losses from disposals ofitems of property, plant and equipment are calculated as the difference between the proceeds ofsale and the carrying amount, and are recorded in profit or loss.

Investment property

Investment property comprises land and buildings held in order to generate rental income and/orfor the purposes of capital appreciation and that are not used in the ordinary course of business. Itis measured at fair value. The fair value was determined by a property expert.

Leasing

Leases are classified as finance leases if substantially all of the risks and rewards of ownershipare transferred to the lessee under the terms of the lease. All other leases are classified asoperating leases.

Non-current assets that are rented or leased and where the relevant Group company haseconomic ownership (finance leases) are recognised at the present value of the minimum leasepayments or the lower fair value and depreciated over their useful lives in accordance with therequirements of IAS 17 (Leases). If it is not sufficiently certain at the start of the lease thatownership will transfer to the lessee, the asset must be depreciated over the shorter of the term ofthe lease and the useful life.

The corresponding liability to the lessor is reported in the balance sheet as a finance leaseobligation under liabilities from finance leases. The lease payments are apportioned between thefinance charge and the reduction of the lease obligation so as to produce a constant periodic rateof interest on the remaining balance of the liability.

Lease payments made under the terms of an operating lease are reported as an expense in theincome statement on a straight-line basis over the term of the lease.

Impairment of non-financial assets

Assets with indefinite useful lives are not depreciated or amortised; they are tested for impairmentannually or whenever there are indications that an asset may be impaired. Assets subject todepreciation or amortisation are reviewed for impairment if relevant events or changes incircumstances indicate that the carrying amount may no longer be recoverable. Any impairmentloss recognised is equal to the excess of the carrying amount over the recoverable amount. Therecoverable amount is the higher of the fair value of the asset less selling costs and the value inuse. For the purposes of the impairment test, assets are combined at the lowest level for whichcash flows can be separately identified (cash-generating units).

If an impairment charge is subsequently reversed, the carrying amount of the asset (of the cash-generating unit) is increased to the newly estimated recoverable amount. For this purpose, thehigher carrying amount resulting from the increase may not exceed the amount that would havebeen determined, net of depreciation or amortisation, if no impairment charge had been recognisedin respect of the asset (the cash-generating unit) in prior years. A reversal of an impairment chargeis recognised immediately in profit or loss. Impairment charges recognised in respect of goodwillmay not be reversed.

Government grants

Government grants are recorded at their fair value if it is reasonably certain that the grant will bemade and that the Group will comply with the conditions necessary for receipt of the grant.

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Government grants in respect of costs are recorded over the period during which the related costs,for which the grant is intended to compensate, are incurred.

The Group receives government grants, that are recorded as income, as compensation for costsarising in connection with partial retirement agreements. As a result of the conditions attached tothese government grants, the Group is under an obligation to keep open the positions occupied bypartially retired employees and to recruit new employees to fill them.

Building cost subsidies

Building cost subsidies are either paid to the lessor by the Group company for the purpose ofupgrading the property or granted by the lessor for independent building work for the constructionof the store. Building cost subsidies paid are accounted for as other assets and are expensed overthe remaining minimum term of the contract. Building cost subsidies received are reported as otherliabilities and reversed to income over the minimum term of the contract.

Current income taxes

The applicable rate of income tax is calculated on the basis of the tax laws in force on the balancesheet date for the countries in which the Company’s subsidiaries operate. The applicable rates ofincome tax for the particular countries are between 17.2% and 30.0%, as in the previous year.Adequate and appropriate provisions are recognised for expected tax payments on the basis ofthese tax laws.

A profit and loss transfer agreement and tax grouping for income tax purposes was in placebetween Adler Modemarkte GmbH and its shareholder AMODA GmbH with the result that AdlerModemarkte GmbH as a member of the tax group had no income tax liability. The profit and losstransfer agreement was terminated on 30 September 2010 with effect as at 31 December 2010.Since 1 January 2011, the tax grouping has no longer been in place. Since no liability to make taxpayments was incurred by Adler Modemarkte GmbH, no tax expense was recorded until thecessation of the grouping for tax purposes. Following the termination of the grouping for taxpurposes as at 31 December 2010, the effects of actual taxes have been included in the financialstatements for the first time from 1 January 2011. Future income tax liabilities or benefits areincluded in the financial statements of companies not forming part of the grouping for tax purposes.

Deferred taxes

In accordance with IAS 12, deferred taxes are recognised for all temporary differences between thetax bases of the assets and liabilities and their carrying amounts in the IFRS consolidated financialstatements (liability method). Deferred taxes are measured on the basis of the tax rates and taxlaws in force or substantively enacted at the balance sheet date and which are expected to applyat the date of realisation of the deferred tax asset or settlement of the deferred tax liability.Deferred tax assets are recognised to the extent that it is probable that taxable profit will beavailable against which the temporary difference can be utilised. If it is sufficiently certain that it willbe possible to utilise the future tax benefit resulting from loss carryforwards in future periods, adeferred tax asset is recognised.

IAS 12.39 provides that deferred taxes on temporary differences in connection with investments insubsidiaries (‘‘outside basis differences’’) should be recognised in the consolidated financialstatements only when the following criteria are not met:

– the parent company, shareholder or joint venture partner is in a position to control thetiming of the reversal of the temporary difference; and

– it is probable that the temporary difference will not reverse in the foreseeable future.

This is not the case within the Adler Group. The temporary difference generally reverses only whenthe company is sold. At the present time the Adler Group is not planning to dispose of anysubsidiaries but, on the other hand, it would be in a position to control the timing of any disposal.No deferred taxes are recognised in the consolidated financial statements of the Adler Group inrespect of temporary differences relating to investments in subsidiaries.

No deferred taxes were recognised in respect of differences between the tax bases and theamounts currently included in the financial statements within Adler Modemarkte GmbH during theperiod of the grouping of companies for tax purposes, since the reversal of these differences wouldnot have resulted in a tax effect. As a consequence of the termination of the tax grouping betweenAdler Modemarkte GmbH and AMODA GmbH as at 31 December 2010, deferred taxes were

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required to be recognised for the first time as at 31 December 2010 in respect of differences inmeasurement between the IFRS carrying amounts and the tax bases of assets and liabilities.Deferred taxes were recognised for all companies not forming part of the tax grouping inaccordance with the requirements of IAS 12.

Deferred tax assets and liabilities are netted if there is a legally enforceable right to offset currenttax assets against current tax liabilities and if the deferred taxes relate to the same tax authority.

Inventories

Merchandise accounted for as inventories is generally carried at the lower of cost and netrealisable value. Net realisable value is the amount of the estimated sale proceeds achievable inthe normal course of business less the necessary variable costs of sale. The cost of productionincludes all directly attributable costs and appropriate portions of necessary overheads anddepreciation in addition to direct materials and production costs. Cost is determined using theweighted average method.

Receivables and other assets

* Trade receivables

Trade receivables are recorded initially at fair value and measured in subsequent periods atamortised cost less any impairment losses. An impairment charge is recorded in respect of tradereceivables if there are objective indications that the amounts of receivables due are not collectiblein full. The amount of the impairment charge is measured as the difference between the carryingamount of the receivable and the present value of the estimated future cash flows from thatreceivable, determined using the effective interest rate method. The impairment charge is reportedin profit or loss. Trade receivables are classified under the loans and receivables category.

* Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that have either been allocatedto this category or have not been allocated to any of the other measurement categories set out inIAS 39. They are measured at fair value. Unrealised gains and losses resulting from changes infair value are recorded in other comprehensive income. When securities within the available-for-sale financial assets category are disposed of or become impaired, the adjustments to fair valueaccumulated directly in equity are recorded in the income statement as gains or losses fromfinancial assets.

* Derivative financial instruments

The Adler Group did not make use of any derivative financial instruments in the period underreview.

* Other receivables and other assets and loans

Other receivables and other assets and loans are recorded initially at fair value and measured insubsequent periods at amortised cost using the effective interest method – in the case of non-current loans – less any impairment losses. Appropriate valuation allowances are recognised inrespect of any risks existing. At each balance sheet date the carrying amounts of financial assetsnot measured at fair value through profit or loss are reviewed for objective indications ofimpairment (such as significant financial difficulties on the part of the debtor, a high probability ofinsolvency proceedings against the debtor, a significant change in the technological, economic orlegal environment, or in the market environment of the issuer or a permanent decline in the fairvalue of the financial asset to below amortised cost). Any impairment charge, based on a lower fairvalue in comparison with the carrying amount, is reported in the income statement. If it becomesclear at subsequent measurement dates that the fair value has risen objectively as a result ofevents that occurred after the date when the impairment charge was recognised, the impairmentcharge is reversed through profit or loss in the relevant amount. The fair value determined for thepurpose of reviewing possible impairment losses in respect of loans and receivables measured atamortised cost is equal to the present value of the estimated future cash flows, discounted at theoriginal effective rate of interest.

Other receivables and other assets and loans are allocated to the loans and receivables category.

Financial assets are generally recorded at the trade date.

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Cash and cash equivalents include cash, demand deposits and other short-term highly liquidfinancial assets with an original term of no more than three months. Overdrafts utilised arereported as liabilities to banks under current financial liabilities.

Equity

Equity consists of subscribed capital, capital reserves and retained earnings (net accumulatedlosses). The subscribed capital represents the nominal capital of the parent company. Capitalreserves comprise all capital amounts contributed to the Company from external sources that arenot subscribed capital.

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation arising asa result of a past event, it is probable that an outflow of resources embodying economic benefitswill be required to settle the obligation and the amount of the provision can be reliably estimated.Where there is a number of similar obligations, the likelihood that an outflow of resources will berequired is determined by considering that class of obligations as a whole. Provisions are stated atthe expected settlement amount after taking into account all identifiable associated risks and arenot offset against rights of recourse.

Where the effect of the time value of money is material, non-current provisions are carried at thesettlement amount discounted to the balance sheet date. The discount rate used for this purpose isa pre-tax rate of interest reflecting the current market assessment of the economic situation andthe risks specific to the obligation.

Employee benefits

* Pension obligations

The Adler Group has a number of different benefit plans. They include both defined benefit anddefined contribution plans. Defined contribution plans are post-employment plans under which anenterprise pays fixed contributions into a separate entity (such as a fund or insurancearrangement) and has no legal or constructive obligation to pay further contributions, even if thefund or the entitlements from the insurance agreement entered into do not have sufficient assets topay all employee benefits relating to employee service in the current reporting period and priorperiods. A defined benefit plan is a post-employment plan other than a defined contribution plan.

The agreements underlying the defined benefit plans provide for different benefits within the Groupdepending on the particular subsidiary. The latter mainly comprise

* pension entitlements once the relevant pensionable age is reached,

* one-off payments on cessation of employment.

The provision relating to defined benefit plans carried in the consolidated balance sheet iscalculated as the present value of the pension obligation at the balance sheet date less the fairvalue of any plan assets available, after taking into account unrecognised actuarial gains andlosses and any past service cost not yet recognised.

The actuarial calculation of the pension provisions for the Company’s old-age part time is based onthe projected unit credit method prescribed by IAS 19 (Employee Benefits). An actuarial valuationis carried out by independent actuarial experts for this purpose at each balance sheet date. Theprojected unit credit method takes account of the known pensions and vested benefits at thebalance sheet date and includes increases in salaries and pensions expected in the future. Thevaluations are based on the legal, economic and tax environment of the individual country. Theobligations, which exist solely in the European economic area, were measured using an actuarialrate of interest of 4.75% (prior year 5.25%), projected annual wage and salary increases of 2.5%(prior year 2.0%) and projected annual pension increases of 2.0% (prior year 1.5%). Employeeturnover is determined for each specific company and taken into account on the basis of age andlength of service. The actuarial valuations are mostly based on specific mortality tables for eachcountry. The provision is made up of the present value of the expected benefits less the fair valueof the plan assets plus or minus any actuarial gains and losses not yet recognised. The expectedreturn on the plan assets was assumed to be 3.5% (prior year 4.0%).

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The accumulated actuarial gains and losses resulting from the differences arising over the yearsbetween the projected pension obligations and plan assets and the actual amounts at the year-endare only recognised if they lie outside a range of 10% of the higher of the pension obligations andthe plan assets. In this event, the excess is divided by the average remaining working lives of theactive employees participating in the plan and recorded as an additional expense or item ofincome. Past service cost for benefits that have not yet vested is allocated over the remainingworking life until the entitlement vests. The cost relating to benefits that have already vested isrecognised as an expense immediately. The interest component of the addition to provisionsincluded in the pension expenses (interest cost for pension obligations and expected income fromplan assets) is reported as interest expense within personnel expenses.

Payments out of a defined contribution benefits plan are included in profit or loss and reportedwithin personnel expenses.

* Obligations for severance payments

Employees who began their service in Austria on or after 1 January 2003 participate in a definedcontribution benefits plan. Obligations arising from severance payments for employees whoseservice began prior to 1 January 2003 are covered by defined benefit plans. When service isended by the company or pensionable age is reached, or in the case of invalidity or death,participating employees receive a severance payment which amounts to a multiple of their basicmonthly salary – depending on their length of service – subject to a maximum of twelve months’salary. A maximum of three months’ salary is paid immediately on cessation of service, while thepayment of any further amounts is distributed over a period of several months. In the event ofdeath, the heirs of participating employees are entitled to 50% of the severance payment.

* Termination benefits

Termination benefits are paid when an employee is dismissed prior to the normal retirement dateor when an employee leaves employment voluntarily in return for a termination payment. TheGroup recognises termination benefits immediately when it is demonstrably and irrevocablycommitted to terminate the employment of current employees on the basis of a detailed formalplan which cannot be withdrawn, or when it is demonstrably required to pay termination benefits onthe voluntary termination of employment by employees. Payments falling due more than twelvemonths after the balance sheet date are discounted to their present value. The entitlements totermination benefits are reported under provisions for personnel expenses. This item also includesportions of the entitlements arising from the German provisions relating to partial retirementarrangements.

Liabilities

* Financial liabilities

Financial liabilities are recorded at fair value on initial recognition and measured at amortised costin subsequent periods. Differences between the historical cost and the repayment amount of non-current liabilities are reflected in the financial statements using the effective interest method.Financial liabilities measured at amortised cost are recognised initially at fair value, taking intoaccount transaction costs.

Loan liabilities are classified as current if repayment is due within the following twelve months.

Discount entitlements not yet utilised by customers are also reported in current financial liabilities.Customers are awarded these entitlements whenever they make a purchase using the Adlercustomer card. Within a specifically defined period, customers can offset these discountentitlements against a subsequent purchase or have the amount paid out in cash. The amountincluded in financial liabilities represents customers’ discount entitlements not yet utilised at thebalance sheet date.

* Liabilities from finance leases

Lease liabilities are recognised if economic ownership of the leased or rented leased assets isattributable to companies of the Adler Group and the assets are capitalised under property, plantand equipment (finance leases). On initial recognition, the lease obligations are recorded at the fairvalue of the leased asset or, if lower, the present value of the lease payments.

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For this purpose, the finance charge is apportioned over the term of the lease in such a way thata constant periodic rate of interest over time is produced on the outstanding balance of the financelease liability.

* Trade payables and other liabilities

Trade payables and other liabilities are carried at amortised cost. Trade payables and other currentliabilities are reported under other liabilities.

Contingent liabilities

Contingent liabilities are possible or present obligations resulting from past events but for which anoutflow of resources is estimated to be not probable. Under IAS 37, obligations of this nature arenot recorded in the balance sheet but are disclosed in the notes to the financial statements.

Recognition of income and expenses

Revenue represents the fair value of the consideration received or receivable for the sale of goodsand services in the ordinary course of business. Revenue is reported net of VAT and afterdeducting rebates and discounts. Customers’ entitlements to refunds relating to goods delivered arerecorded in the income statement once the relevant invoices have been examined. No programmesentitling customers to acquire loyalty points were offered during the period under review.

Where customers making purchases with the Adler customer card acquire an entitlement to aparticular discount, the discount is recorded as a reduction in revenue. The liability is reportedwithin financial liabilities. The liability is reversed when the discount is utilised. If customers allowtheir discount entitlements to expire, the amount not utilised is reported within revenue.

Revenue and other operating income is generally recognised only when the services have beenperformed or the goods or products have been delivered and the risks of ownership havetransferred to the customer. Retail sales are settled in cash or using an EC or credit card. Thecard company’s charges are recorded in other operating expenses. The Group’s business policy isthat the end user acquires its products with a right of return. This right of return is quantified onthe basis of historical amounts and deducted from revenue.

Expenses are recognised when the goods or services are utilised or when the expense is incurred.This also applies to the recognition of advertising expenses. The latter are recorded in accordancewith the provisions of IAS 38 when the service – in this case the provision of advertising services– has been performed for the Adler Group and not at the later date when the Adler Group isconducting the relevant advertising campaigns.

Rental income and expenses are recorded as revenue or expenditure on an accruals basis in theperiod to which they relate.

Net finance costs

Interest income and interest expenses are recorded on an accruals basis in the period to whichthey relate using the effective interest method, based on the outstanding balance of the loan andthe applicable interest rate. The applicable interest rate is the rate of interest that discounts theestimated future cash flows over the term of the financial asset to its net carrying amount.

In the case of a finance lease agreement, payments received are apportioned between the financecharge and the reduction of the outstanding liability using mathematical methods.

Borrowing costs are reported in the income statement in the period in which they are incurred,except for borrowing costs required to be capitalised in respect of qualifying assets.

Costs of equity issuance

The Company is currently preparing to carry out a capital increase. In accordance with IAS 32,costs directly attributable to the issue of equity instruments are accounted for as a deduction fromequity at the date of the issue. Since the capital increase had not been carried out by the balancesheet date, the costs of the transaction already incurred were recorded as prepaid expenses. Theamount will be reclassified into equity at the date of the capital increase. If the transaction is notcarried out, the prepaid expenses will be reversed to profit or loss.

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Segment reporting

Under the provisions of IFRS 8, operating segments are identified on the basis of the internalorganisation and reporting structure. An operating segment is defined as a component of an entitywhich generates revenues and incurs expenses from its business activities, whose operating resultsare regularly reviewed by the entity’s chief operating decision maker to make decisions aboutresources to be allocated to the segment and assess its performance and for which discretefinancial information is available. The chief operating decision maker is the company’smanagement.

Segments are structured for the purpose of segment reporting according to the entity’s principalactivities.

The reportable segments within the Adler Group are

* stores

* textile logistics (discontinued in financial year 2010).

Earnings per share

IAS 33 Earnings per share requires earnings per share to be disclosed even if the shares of anentity are not publicly traded but the company nevertheless files its IFRS consolidated financialstatements with a securities commission or other regulatory organisation for the purpose of issuingordinary shares in a public market. At the date of preparation of these consolidated financialstatements, the Company’s equity capital consists of a single share. The earnings per share aretherefore the same as the consolidated net profit or loss. There are no potential dilutive effects atthe present time. The earnings per share figure is calculated by dividing the consolidated net profitor loss by the share.

Accounting treatment of non-current assets and liabilities held for sale and discontinuedoperations

A non-current asset is classified as held for sale in accordance with IFRS 5 if its carrying amountis intended to be recovered principally through a sale transaction rather than through continuinguse. In principle, there must be a plan to sell the asset within the next 12 months and it must bepossible to complete the sale within that period. The asset is measured at the lower of its carryingamount and the fair value less costs to sell and is presented separately in the balance sheet.Under IFRS 5, a component of an entity is accounted for as a discontinued operation if it is heldfor sale or has already been disposed of. The discontinued operation is measured at the lower ofits carrying amount and the fair value less costs to sell.

Litigation and claims for damages

The companies in the Adler Group are involved in a range of legal and administrative proceedingsin the course of their general business operations or similar proceedings could be initiated orclaims asserted in the future. Although the outcome of individual proceedings cannot be predictedwith certainty given the imponderable factors involved in legal disputes, it is currently estimatedthat they will have no material adverse effect on the results of operations of the Group over andabove the risks reflected in the financial statements in the form of liabilities or provisions.

Use of estimates and assumptions

The preparation of the consolidated financial statements has involved the making of assumptionsand use of estimates that have affected the reporting and the amount of the assets, liabilities,income and expenses recognised and of the contingent liabilities. These estimates andassumptions relate principally to the establishment of uniform economic useful lives used acrossthe Group, the assessment of whether impairment charges are required for inventories, themeasurement of provisions, pensions and risks specific to individual locations, together with therecoverability of future tax benefits, in particular those arising from loss carryforwards. The actualamounts may differ in particular cases from the estimates and assumptions made. Revisedamounts are reflected at the date when improved knowledge becomes available.

Our estimates are based on historical amounts and other assumptions considered to be accuratein the particular circumstances. The actual amounts may differ from the estimates made. Theestimates and assumptions are reviewed on an ongoing basis. The true and fair view principle isalso applied to the use of estimates.

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Useful lives of non-current assets

The determination and standardisation of economic useful lives applied across the Group is basedon historical data relating to the actual expected useful lives of non-current assets. It is assumedthat the assets are subjected to normal use.

Valuation allowances on inventories

Valuation allowances on inventories are determined in the light of conditions in the sales marketand are based to some extent on historical amounts.

Income taxes

The Group has a liability to pay income taxes in various countries in accordance with differentparticular bases of assessment. The global provision for taxes is recognised on the basis of theprofit determined in accordance with local tax regulations and the applicable local rates of tax.

The amount of the tax provisions and liabilities is based on estimates of whether and in whatamount income taxes will become payable. Risks arising from the possibility of a differenttreatment for tax purposes are reflected, where necessary, in provisions for the appropriateamount.

In addition, it is necessary to make estimates in order to assess the recoverability of deferred taxassets. The key factor in assessing the recoverability of deferred tax assets is the estimation of thelikelihood that future profits for tax purposes (taxable income) will be available.

Uncertainties relating to the interpretation of complex tax regulations and the amount and timing offuture taxable income must also be taken into account. Especially in view of the internationalstructure of the Group, differences between actual events and our assumptions, or future changesin those assumptions, may result in revised amounts for the tax charge or benefit in future periods.

Provisions

Assumptions about the likelihood of an outflow of resources occurring have to be made for thepurpose of determining whether to recognise provisions. These assumptions represent the bestpossible assessment of the circumstances underlying the particular provision but are subject to anelement of uncertainty given the inevitable use of assumptions. Assumptions also have to be madeabout the amount of any outflow of resources for the purpose of measuring the provisions. Achange in the assumptions can therefore result in a revised amount for the provision. Accordingly,the use of assumptions can also give rise here to an element of uncertainty.

The determination of the present value of pension obligations depends primarily on the choice ofthe discount rate of interest and the other actuarial assumptions which must be formulated afreshat the end of each financial year. For this purpose, the underlying discount rate is the rate ofinterest on corporate bonds with high credit ratings, denominated in the currency in which thepayments are made and with the same maturity structure as the pension obligations. Changes inthese interest rates may result in material revisions to the amount of the pension obligations.

Impairment

Goodwill is tested annually for impairment in accordance with IAS 36 Impairment of assets and IAS38 Intangible assets. If events or changes in circumstances give rise to indications of possibleimpairment, impairment testing must also be carried out more frequently. The amortisation ofgoodwill is not permitted. For the purpose of testing goodwill for impairment, the carrying amount ofthe individual cash-generating unit to which the goodwill has been allocated is compared with therespective recoverable amount, i.e. the higher of the fair value less costs to sell and the value inuse. In those cases where the carrying amount of the cash-generating unit is higher than itsrecoverable amount, the difference represents an impairment loss. Impairment losses calculated inthis manner are deducted initially from the carrying amount of the goodwill allocated to thestrategic business unit in question. Any remaining amount is allocated to the other assets in therespective strategic business unit pro rata on the basis of their carrying amounts, to the extent thatIAS 36 applies. The calculation of the recoverable amount is based on the future cash flowsexpected to be derived from the continuing use of the cash-generating unit. The cash flowprojections were based on the Company’s current business plans. The cost of capital is calculatedas the weighted average of the cost of equity and the cost of debt, taking into account theproportions of total capital represented by equity and debt respectively. The cost of equityrepresents the expected return from the cash-generating unit and is derived from a suitable peer

F-34


group. The cost of debt is based on the average cost of debt derived from bonds with an averageremaining maturity of 20 years.

For the purpose of reflecting risks specific to individual locations in the financial statements (mainlythe estimation of anticipated losses from operating lease agreements and the impairment of financelease agreements relating to store rents), an adjusted EBIT for a particular planning horizon isestimated for locations with ongoing losses. This is then compared with objectively determinedrents in order to calculate the extent of any failure to cover future rents and/or to adjust thecarrying amounts to a recoverable amount determined under the assumption either that the locationwill continue in its present use or that it will be used for a different purpose.

The fair value of land and buildings being tested for impairment is normally based on a valuationby an independent expert. Expert opinions on the market values of property, plant and equipmentare subject to an element of uncertainty as a result of the unavoidable use of assumptions.

All identifiable risks at the date of preparation of the consolidated financial statements wereincluded in the context of the underlying estimates and assumptions.

IV. Notes to the income statement

1. Revenue

Revenue (net) is generated almost entirely from sales of goods and is distributed geographically asfollows:

2010 2009

c’000 c’000

Germany ........................................................................................................ 356,195 332,014Austria ........................................................................................................... 74,599 60,873Luxembourg ................................................................................................... 14,015 12,959

444,809 405,846

2. Other operating income

2010 2009

c’000 c’000

Rental income................................................................................................ 3,387 4,344Licence income.............................................................................................. 859 2,466Income from the reversal of other liabilities................................................... 789 2,081Recharged costs / cost reimbursements ....................................................... 667 616Prior-period income ....................................................................................... 484 0Income from damages ................................................................................... 431 289Income from the reversal of provisions ......................................................... 412 4,003Government subsidies for personnel expenses............................................. 252 129Commissions ................................................................................................. 185 2,721Income from disposals of non-current assets................................................ 22 133Miscellaneous ................................................................................................ 684 927

8,172 17,709

The rental income was generated from subletting to store concessionaires.

The prior-period income consists of credits from suppliers in respect of deliveries of goods relatingto prior years.

Licence income amounting to c1,800 thousand was generated from the grant of a trademarklicence to a subsidiary of AMODA GmbH.

3. Cost of materials

The cost of materials amounting to c210,360 thousand (prior year: c205,277 thousand) consistsentirely of purchased merchandise.

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4. Personnel expenses

2010 2009

c’000 c’000

Wages and salaries ....................................................................................... 62,062 66,073Other social security contributions................................................................. 6,191 6,694Employers’ contributions to statutory pension scheme.................................. 5,926 6,778Expenses for old-age part time ..................................................................... 774 689Expenses for partial retirement/death benefits/anniversaries ........................ 43 319

74,996 80,553

The significant reduction in personnel expenses reflects the lower number of employees in 2010.

The average number of people employed by the Group during the reporting period was:

2010 2009

c’000 c’000

Managers....................................................................................................... 161 150Salaried employees ....................................................................................... 706 778Part-time workers .......................................................................................... 3,098 3,584Trainees......................................................................................................... 209 190

4,174 4,702

The fall in the number of employees is the result of the restructuring programme completed infinancial year 2010.

The numbers of employees shown relate solely to the continuing operations. An average of 383employees (prior year 421 employees) were engaged in the discontinued operations during theyear under review.

5. Other operating expenses

2010 2009

c’000 c’000

Lease payments and building expenses........................................................ 54,176 53,171Advertising costs ........................................................................................... 37,960 32,028Shipping and transport costs ......................................................................... 12,295 12,881Technical facilities.......................................................................................... 8,371 8,315Administrative expenses ................................................................................ 2,919 3,511External cleaning costs.................................................................................. 2,744 3,109Consumables ................................................................................................. 2,489 2,396Consultancy expenses................................................................................... 2,383 4,412Office expenses ............................................................................................. 1,398 1,287Incidental costs of monetary transactions ..................................................... 1,122 1,010Losses from disposals of non-current assets ................................................ 645 410Miscellaneous ................................................................................................ 3,274 2,721

129,776 125,251

The reduction in consultancy expenses mainly reflected the consultancy services utilised in theprevious year in connection with the restructuring programme.

The lower figure for external cleaning costs is the result of contract renegotiations and thereduction in the range of services.

The rise in advertising costs is mainly due to the costs of renewed TV and radio advertising whichwere not incurred in the previous year.

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6. Depreciation, amortisation and impairment

The amounts of depreciation and amortisation are presented in the consolidated statement ofchanges in non-current assets.

No impairment losses were recognised within the continuing operations in financial year 2010. Inaccordance with the provisions of IFRS 5, the assets and liabilities attributable to the discontinuedoperations were written down to their fair value less costs to sell. This resulted in an impairmentloss of c2,665 thousand recorded in its entirety within discontinued operations. For further details,please see Note 9.

In financial year 2009, impairment losses amounting to c448 thousand were recognised in respectof the rights to the ‘‘VIVENTY by Bernd Berger’’ trademark acquired under the terms of a financelease. The recoverable amount is equal to the value in use. As a result of continuous negativegross income relating to the ‘‘VIVENTY by Bernd Berger’’ line, the intangible asset was written offin full.

Impairment losses totalling c1,439 thousand were also recorded in financial year 2009 in respect ofinternally generated intangible assets. Of this amount, c1,367 thousand related to internallygenerated logistics software and c72 thousand to a computer-based incentive pay system.

Also in financial year 2009, impairment losses amounting in total to c1,072 thousand wererecorded in connection with the reclassification of one property into investment property. Theportion of the property no longer utilised by the Company itself was reclassified out of property,plant and equipment. Of the total impairment charge, c900 thousand related to the investmentproperty, c53 thousand to land and c119 thousand to buildings. The property was written down toits fair value including land. This amounted to c4,020 thousand as at 31 December 2009.

In financial year 2009, reversals of impairment losses amounting to c565 thousand were recordedunder impairment since only some of the closures of stores planned in financial year 2008 actuallytook place. The impairment charges previously recognised in respect of the property, plant andequipment of those stores which continued to be operated were reversed up to the assets’ originaldepreciated cost.

The impairment losses of c2,394 thousand in the financial year 2009 were reported in the incomestatement as follows:

2009

c’000

Impairment .......................................................................................................................... 2,322Profit/loss from discontinued operations ............................................................................. 72

7. Net finance costs

Net finance costs comprise the items below analysed by the items giving rise to them as follows:

2010 2009

c’000 c’000

Interest incomeReceivables from affiliated companies....................................................... 3,402 1,622Receivables from banks............................................................................. 136 210Other .......................................................................................................... 0 87

3,538 1,919

Interest expenseInterest expense from finance leases ........................................................ -3,865 -4,639Liabilities to banks...................................................................................... -167 -15Liabilities to affiliated companies................................................................ -88 -363Other .......................................................................................................... -1 -5

-4,121 -5,022

Net finance costs......................................................................................... -583 -3,103

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The interest income arising from receivables from affiliated companies is attributable to loansgranted to Adler Treasury GmbH. In addition, interest income was received from MOTEX (affiliatedcompany since 1 October 2010) in an amount of c89 thousand. The interest income from banksrelates to current account balances. Interest expenses amounting to c88 thousand were alsoincurred with respect to MOTEX (affiliated company since 1 October 2010). The related items wereallocated to the loans and receivables category.

All interest income and interest expenses arising from financial assets and financial liabilities werecalculated using the effective interest method.

The interest included in net finance costs represents the total amount of interest income andexpenses calculated using the effective interest method.

8. Income taxes

The income tax expense was made up as follows:

2010 2009

c’000 c’000

Current tax expense (-) / benefit (+) .............................................................. -301 -86Deferred taxes ............................................................................................... 5,079 -63

4,778 -149


A profit and loss transfer agreement and tax grouping for income tax purposes was in placebetween Adler Modemarkte GmbH and AMODA GmbH until 31 December 2010 with the result thatAdler Modemarkte GmbH as a member of the tax group had no income tax liability until thetermination of the profit and loss transfer agreement.

The tax rate of 27.000% applied for the German company is made up of corporation tax amountingto 15.825% (including the solidarity surcharge of 5.500%) and the trade tax rate of 11.150%.Foreign income taxes are calculated on the basis of the laws and regulations in force in theparticular countries. The overall tax rate applicable for the Adler Group amounts to 27.000%. Thetax rates are unchanged from the previous year.

The calculation of deferred taxes is based on the tax rates expected to apply in the individualcountries when the deferred tax asset is realised or the liability is settled; these generally reflectthe tax laws in force or enacted at the balance sheet date. Deferred taxes were recognised for thefirst time within Adler Modemarkte GmbH in the financial year 2010 as the tax grouping for incometax purposes was terminated as at 31 December 2010. The first-time recognition of deferred taxesresulted in a deferred tax benefit in the financial year 2010.

The differences between the income tax expense actually recorded and the expected income taxexpense are shown in the following reconciliation. The expected income tax expense is calculatedfrom the profit or loss before taxes multiplied by the applicable income tax rate.

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2010 2009

c’000 c’000

Consolidated net profit/loss before taxes ...................................................... 23,701 -8,472Applicable rate of income tax ........................................................................ 27.00% 27.00%Expected income tax expense ................................................................... 6,399 -2,287

Effects of differing foreign tax rates ......................................................... 39 120

Effects of differing German tax rates ........................................................ -13 0

Tax effectsDeferred and current taxes not recognised due to grouping of companies for

tax purposes* ............................................................................................ -4,960 2,009Prior-period tax benefits ................................................................................ 35 2Current taxable losses not recognised .......................................................... 181 403Tax-exempt income ....................................................................................... 0 -98Effects from first-time recognition of deferred taxes ...................................... -6,495 0Other differences ........................................................................................... 36 0

Total tax effects ........................................................................................... -11,203 2,316

Actual tax expense ...................................................................................... -4,778 149

Effective rate of tax ....................................................................................... -20.16% -1.75%

* In 2010 this item only contains effects from current taxes.

9. The profit/loss from discontinued operations

In financial year 2010 the Company took the decision to dispose of MOTEX Mode-Textil-ServiceLogistik und Management GmbH. The company was sold to BluO beta equity. As a result of thedecision to sell the company, the assets and liabilities of MOTEX Mode-Textil-Service Logistik undManagement GmbH held for sale were accounted for as a discontinued operation in accordancewith the requirements of IFRS 5. By a purchase agreement dated 28 September 2010, MOTEXMode-Textil-Service Logistik und Management GmbH was sold with effect as at 30 September2010. The operating profit of MOTEX Mode-Textil-Service Logistik und Management GmbH up to30 September 2010 was reported in the consolidated income statement as part of the profit or lossfrom discontinued operations. The prior-year figures for the discontinued operation within theconsolidated income statement were adjusted accordingly in order to present discontinuedoperations separately for that year as well. In the course of reclassifying the assets and liabilitiesof the discontinued operations as a disposal group in the financial statements for financial year2010, an impairment loss of c2,665 thousand was recognised which was reported in its entiretywithin discontinued operations. The whole of the disposal group (including inventories) was takeninto account for the purpose of determining the impairment losses.

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The purchase price for MOTEX Mode-Textil-Service Logistik und Management GmbH amounted toc135 thousand and was paid in cash. At the date of sale, the carrying amount of the non-currentassets held for sale amounted to c12,397 thousand while the carrying amount of the liabilities heldfor sale was c12,262 thousand. The breakdown of the profit or loss from discontinued operations isas follows:

Discontinued operations 2010 2009

c’000 c’000

Income ........................................................................................................... 18,831 24,318Expenses ....................................................................................................... -16,931 -22,947

Operating profit before tax ......................................................................... 1,900 1,371

Income taxes on operating profit ................................................................... -292 -28

Operating profit after tax ............................................................................ 1,608 1,343

Gain/loss from remeasurement / disposal ..................................................... -2,665 0

Gain/loss from remeasurement / disposal after tax ................................. -2,665 0

Profit/loss from discontinued operations ................................................. -1,057 1,343

At the date of sale, the assets held for sale comprised intangible assets of c4 thousand, property,plant and equipment of c219 thousand, inventories of c40 thousand, receivables and other assetsof c11,612 thousand, cash and cash equivalents of c511 thousand and deferred tax assetsamounting to c11 thousand. The liabilities held for sale comprised provisions of c132 thousand,liabilities of c12,119 thousand and deferred tax liabilities of c11 thousand.

V. Notes to the balance sheet

10. Intangible assets

The intangible assets comprise internally generated software as well as purchased software, rightsand licences and goodwill. The internally generated intangible assets represent capitaliseddevelopment costs for logistics software and for a computer-based incentive pay system.

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The development of intangible assets in financial year 2010 was as follows:Software,

rights and

licences Goodwill

Licences under

finance leases

Internally

generated

assets Pre-payments Total

c’000 c’000 c’000 c’000 c’000 c’000

Cost 1 Jan. 2010......................... 24,692 0 828 2,913 0 28,433Additions....................................... 420 0 0 0 0 420Disposals ...................................... -78 0 0 0 0 -78Transfers ...................................... 0 0 0 0 0 0Reclassification discontinued

operations ................................. -1,106 0 0 -656 0 -1,762Change in group of consol.

companies ................................ 1 868 0 0 0 869As at 31 Dec. 2010 ..................... 23,929 868 828 2,257 0 27,882Amortisation 1 Jan. 2010........... -22,256 0 -380 -1,100 0 -23,736Additions....................................... -776 0 0 -52 0 -828Disposals ...................................... 78 0 0 0 0 78Transfers ...................................... 0 0 0 0 0 0Reclassification discontinued

operations ................................. 1,028 0 0 385 0 1,413As at 31 Dec. 2010 ..................... -21,926 0 -380 -767 0 -23,073Impairment 1 Jan. 2010.............. -52 0 -448 -1,637 0 -2,137Additions....................................... 0 0 0 0 0 0Disposals ...................................... 0 0 0 0 0 0Reversals ..................................... 0 0 0 0 0 0Reclassification discontinued

operations ................................. 52 0 0 270 0 322As at 31 Dec. 2010 ..................... 0 0 -448 -1,367 0 -1,815

Net book value 31 Dec. 2009..... 2,384 0 0 176 0 2,560Net book value 31 Dec. 2010..... 2,003 868 0 123 0 2,994

The additions to amortisation amounting to c828 thousand were reported in the income statementas follows:

2010

c’000

Depreciation and amortisation ............................................................................................ 817Profit/loss from discontinued operations ............................................................................. 11

The development of intangible assets in financial year 2009 was as follows:Software,

rights and

licences

Licences under

finance leases

Internally

generated

assets Pre-payments Total

c’000 c’000 c’000 c’000 c’000

Cost 1 Jan. 2009............................................. 22,612 828 2,913 1,009 27,362Additions .......................................................... 1,074 0 0 0 1,074Disposals.......................................................... -3 0 0 0 -3Transfers .......................................................... 1,009 0 0 -1,009 0As at 31 Dec. 2009 ......................................... 24,692 828 2,913 0 28,433Amortisation 1 Jan. 2009............................... -21,252 -173 -620 0 -22,045Additions .......................................................... -1,004 -207 -480 0 -1,691Disposals.......................................................... 0 0 0 0 0Transfers .......................................................... 0 0 0 0 0As at 31 Dec. 2009 ......................................... -22,256 -380 -1,100 0 -23,736Impairment 1 Jan. 2009 ................................. -52 0 -198 0 -250Additions .......................................................... 0 -448 -1,439 0 -1,887Disposals.......................................................... 0 0 0 0 0Reversals ......................................................... 0 0 0 0 0As at 31 Dec. 2009 ......................................... -52 -448 -1,637 0 -2,137

Net book value 31 Dec. 2008......................... 1,308 655 2,095 1,009 5,067Net book value 31 Dec. 2009......................... 2,384 0 176 0 2,560

The additions to amortisation amounting to c1,691 thousand were reported in the income statementas follows:

2009

c’000

Depreciation and amortisation ............................................................................................ 1,654Profit/loss from discontinued activities ................................................................................ 37

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Goodwill of c868 thousand arose from the first-time consolidation of F.W. Woolworth Co.Ges.m.b.H. as at 31 December 2010. The figures included in the financial statements in respect ofthis business combination are still provisional. The transaction did not take place until the end ofthe reporting period with the result that the determination of the fair values of the assets andliabilities acquired has not yet been completed in all respects. Adjustments may therefore still bemade to the amounts included in the consolidated financial statements within the period of oneyear prescribed by IFRS 3.45 for the measurement of the assets and liabilities. In consequence,the determination of the goodwill is also still provisional. Furthermore, it has not yet been possibleto allocate the goodwill arising on the first-time consolidation of the acquiree to the cash-generatingunits in accordance with the internal reporting system on a definitive basis. In order to comply withthe requirements of IAS 36 and to ensure that goodwill does not become impaired, an impairmenttest was approximated on the basis of the results available to date. The recoverable amount wasdetermined using the fair value less costs to sell on the approximated basis of 3-year cash flowprojections. A post-tax discount rate of 6.46 percent was applied. On the basis of the detailedprojections used, the growth discount was fixed at 1 percent. The approximated calculation gaveno indication of any need for a write-down of goodwill as reported, since the fair value less coststo sell was higher than the carrying amount.

The finance lease agreements consist of a licence for the ‘‘VIVENTY by Bernd Berger’’ trademark.The lease agreement provides for components of rent that are dependent on the level of sales.The lease has a term of 4 years with a subsequent obligation to buy.

Contingent rental expenses of c34 thousand (prior year c0 thousand) were recognised in theincome statement in respect of the licences acquired by means of a finance lease.

No impairment losses were identified in financial year 2010 in respect of assets from financeleases (prior year c448 thousand) or internally generated assets (prior year c1,439 thousand). Forfurther information, please refer to Note 6 Depreciation, amortisation and impairment.

11. Property, plant and equipment

Property, plant and equipment include leased land and buildings attributable to the Group aseconomic owner as a result of the structure of the underlying lease agreements. In order to ensurethat these lease agreements, capitalised as finance leases, are measured at the appropriateamount, they were reviewed with the aim of identifying any impairment write-downs that might benecessary. The reviews of the individual stores do not result in any indications of impairment.

The remaining items of property, plant and equipment consist mainly of the fixtures and fittings ofthe stores.

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The development of property, plant and equipment in financial year 2010 was as follows:

Land and landrights

Buildings(incl.

buildings onthird-party

land)

Buildingsunder finance

leases

Technicalequipment

andmachinery

Otheroperating and

officeequipment

Pre-payments/ assets underconstruction Total

c’000 c’000 c’000 c’000 c’000 c’000 c’000

Cost 1 Jan. 2010 ......................... 228 55,417 129,285 10,967 69,552 39 265,488Additions....................................... 0 1,687 940 0 2,238 73 4,938Disposals ...................................... 0 -1,293 -60 -116 -2,737 0 -4,206Reclassifications ........................... 0 32 0 0 7 -39 0Reclassification discontinued

operations ................................. 0 -200 0 -10,851 -6,352 0 -17,403Change in group of consol.

companies ................................ 0 59 0 0 356 0 415As at 31 Dec. 2010...................... 228 55,702 130,165 0 63,064 73 249,232Depreciation 1 Jan. 2010 ........... 0 -40,956 -95,341 -4,279 -53,942 0 -194,518Additions....................................... 0 -2,865 -6,300 -338 -3,793 0 -13,296Disposals ...................................... 0 1,012 0 119 1,911 0 3,042Reclassifications ........................... 0 0 -547 0 0 0 -547Reclassification discontinued

operations ................................. 0 39 0 4,498 4,132 0 8,669As at 31 Dec. 2010...................... 0 -42,770 -102,188 0 -51,692 0 -196,650Impairment 1 Jan. 2010.............. -53 -231 -547 -4,602 -1,777 0 -7,210Additions....................................... 0 0 0 0 0 0 0Disposals ...................................... 0 0 0 0 0 0 0Reversals...................................... 0 0 0 0 0 0 0Reclassifications ........................... 0 0 547 0 0 0 547Reclassification discontinued

operations ................................. 0 111 0 4,602 1,583 0 6,296As at 31 Dec. 2010...................... -53 -120 0 0 -194 0 -367

Net book value 31 Dec. 2009 ..... 175 14,230 33,397 2,086 13,833 39 63,760Net book value 31 Dec. 2010 ..... 175 12,812 27,977 0 11,178 73 52,215

The additions to depreciation amounting to c13,296 thousand were reported in the incomestatement as follows:

2010

c’000

Depreciation and amortisation ............................................................................................ 12,749Profit/loss from discontinued operations ............................................................................. 547


Land and landrights

Buildings(incl.

buildings onthird-party

land)

Buildingsunder finance

leases

Technicalequipment

andmachinery

Otheroperating and

officeequipment

Pre-payments/ assets underconstruction Total

c’000 c’000 c’000 c’000 c’000 c’000 c’000

Cost 1 Jan. 2009 ......................... 873 59,139 131,774 10,804 72,340 0 274,930Additions....................................... 0 953 0 171 1,513 39 2,676Disposals ...................................... 0 -393 -2,489 -8 -4,301 0 -7,191Reclassification of investment

property..................................... -645 -4,282 0 0 0 0 -4,927As at 31 Dec. 2009...................... 228 55,417 129,285 10,967 69,552 39 265,488Depreciation 1 Jan. 2009 ........... 0 -38,658 -91,264 -3,847 -52,817 0 -186,586Additions....................................... 0 -3,243 -6,547 -432 -4,305 0 -14,527Disposals ...................................... 0 292 2,470 0 3,180 0 5,942Reclassification of investment

property..................................... 0 653 0 0 0 0 653As at 31 Dec. 2009...................... 0 -40,956 -95,341 -4,279 -53,942 0 -194,518Impairment 1 Jan. 2009.............. 0 -112 -547 -4,602 -2,342 0 -7,603Additions....................................... -53 -119 0 0 0 0 -172Disposals ...................................... 0 0 0 0 0 0 0Reversals...................................... 0 0 0 0 565 0 565As at 31 Dec. 2009...................... -53 -231 -547 -4,602 -1,777 0 -7,210

Net book value 31 Dec. 2008 ..... 873 20,369 39,963 2,355 17,181 0 80,741Net book value 31 Dec. 2009 ..... 175 14,230 33,397 2,086 13,833 39 63,760

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The additions to depreciation amounting to c14,527 thousand were reported in the incomestatement as follows:

2009

c’000

Depreciation and amortisation ............................................................................................ 13,868Profit/loss from discontinued operations ............................................................................. 659

For information relating to the impairment losses and reversals recognised, please refer to Note 6Depreciation, amortisation and impairment.

The finance and operating lease agreements relate principally to leased buildings for stores. Thelease agreements generally include renewal clauses as well as price adjustment clauses based onchanges in the rental price index. In addition, variable components of rent are contingentdepending on the sales achieved in the individual stores. In financial year 2010, the contingentrental payments under finance lease agreements amounted to c1,254 thousand (prior yearc812 thousand), while those under operating lease agreements were c1,170 thousand (prior yearc3,433 thousand).

As in the previous year, no impairment losses were recognised in respect of assets from financeleases in financial year 2010.

The terms of the leases generally amount to between 5 and 20 years with renewal options. Therenewal options must be exercised by the Company, depending on the particular lease agreement,at a specified time prior to expiry of the lease agreement. This period ranges between three andtwelve months prior to expiry of the lease agreement. The renewal terms amount to between oneyear and five years.

The expenses for operating lease agreements in the financial year amounted to c49,413 thousand(prior year c48,360 thousand). Expenses for operating lease agreements in the discontinuedoperations in the prior year amounted to c1,990 thousand. The operating lease agreements containsimilar renewal options.

The obligations from operating leases are due in subsequent periods as follows:

2010 2009

c’000 c’000

Operating leasesFuture minimum lease payments

up to 1 year................................................................................................ 33,656 32,3041 to 5 years ................................................................................................ 91,889 103,053more than 5 years...................................................................................... 47,356 61,021

172,901 196,378

In the previous year, there were also obligations from operating leases relating to discontinuedoperations in the amounts of c2,060 thousand (up to 1 year), c8,183 thousand (1 to 5 years) andc15,300 thousand (more than 5 years).

Property, plant and equipment amounting to c618 thousand (prior year c639 thousand) serves ascollateral for financial liabilities.

12. Investment property

The investment property reported in the financial statements consists of land and a building heldby the special purpose entity ALASKA GmbH & Co. KG included in the consolidation that wasreclassified out of property, plant and equipment during financial year 2009. The building is nolonger used in its entirety by the Adler Group and is intended for the most part to be let. Theportion which is now available to be let was reclassified as investment property. It is carried at fairvalue. The fair value at both balance sheet dates was determined by an expert valuer on the basisof market data. At the date of the reclassification in 2009, this resulted in the recognition of animpairment charge amounting to c900 thousand. Rental income of c3 thousand (prior yearc0 thousand) was generated in financial year 2010.

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2010 2009

c’000 c’000

Cost 1 Jan. ................................................................................................... 3,374 0Reclassification from property, plant and equipment..................................... 0 4,274Impairment..................................................................................................... 0 -900

As at 31 Dec. ................................................................................................ 3,374 3,374

As in the previous year, the full amount of investment property serves as collateral for financialliabilities.

Expenses for maintenance and repairs amounting to c26 thousand (prior year c17 thousand) wereincurred during the financial year.

13. Other receivables and other assets

31 Dec.2010

31 Dec.2009

c’000 c’000

Non-current receivables and other assetsPayments into a money market fund to cover partial retirement commitments

(held in trust) ............................................................................................. 381 414Security deposits and sureties....................................................................... 158 158Prepaid expenses .......................................................................................... 110 135

649 707

Current receivables and other assetsReceivables from related parties

Adler Treasury GmbH (affiliated company)................................................ 0 36,407

0 36,407Tax receivables ............................................................................................. 466 2,156Prepaid expenses .......................................................................................... 686 638Credit card receivables .................................................................................. 1,284 784Other.............................................................................................................. 1,472 1,147

3,908 41,132

Other receivables and other assets include financial assets amounting to c1,823 thousand (prioryear c37,763 thousand).

Current prepaid expenses include an amount of c158 thousand (prior year c0 thousand)representing deferred expenditure in connection with the planned capital increase.

The tax receivables consist entirely of income tax receivables by foreign companies. They are theresult of overpayments of tax for the current and previous financial years.

The prepaid expenses relate to advance payments of rent, building cost subsidies andmaintenance contracts.

The loan to Adler Treasury GmbH in an amount of c36,407 thousand included in the previous yearwas offset against a withdrawal from capital reserves during the financial year. For this purpose,Adler Modemarkte GmbH assigned the whole of the loan amounting to c39,228 thousand (seeNote 34) including interest accrued to date to AMODA GmbH.

14. Available-for-sale financial assets

Available-for-sale financial assets amounting to c263 thousand (prior year c0 thousand) includesecurities that it was not possible to allocate to any of the other measurement categories set out inIAS 39. The item consists entirely of fund units. The fund units were acquired by the Adler Group

F-45


as at 31 December 2010 in the course of the acquisition of F.W. Woolworth Co. Ges.m.b.H. Theywere initially recognised at fair value. As a result, no changes in the fair value have yet beenrequired to be recognised in other comprehensive income.

15. Deferred tax assets


The deferred tax liabilities and deferred tax assets relate to the following items:

31 Dec.2010

31 Dec.2009

c’000 c’000

Deferred tax assetsIntangible assets............................................................................................ 538 249Property, plant and equipment ...................................................................... 19 22Investment property ....................................................................................... 878 880Inventories ..................................................................................................... 334 0Receivables and other current assets ........................................................... 689 511Provisions ...................................................................................................... 723 118Liabilities ........................................................................................................ 16,236 4,343Tax loss carryforwards .................................................................................. 19 19

Total deferred tax assets ............................................................................ 19,436 6,142

of which current.......................................................................................... 3,099 5,431of which non-current .................................................................................. 16,337 711

Deferred tax liabilitiesIntangible assets............................................................................................ 34 0Property, plant and equipment ...................................................................... 7,529 2,889Investment property ....................................................................................... 726 727Inventories ..................................................................................................... 0 0Provisions ...................................................................................................... 3,375 595Liabilities ........................................................................................................ 131 1

Total deferred tax liabilities ........................................................................ 11,795 4,212

of which current.......................................................................................... 2,025 4,210of which non-current .................................................................................. 9,770 2

Netting of deferred tax assets and liabilities.................................................. -11,167 -3,899

Balance sheet amount of deferred tax assets .......................................... 8,269 2,243Balance sheet amount of deferred tax liabilities...................................... 628 313

The changes in deferred tax assets compared with the previous year were recorded in profit orloss unless they resulted from the change in the group of consolidated companies.

The loss carryforwards for corporation tax and trade tax purposes shown here relate entirely toGerman companies. No deferred tax assets were recognised in respect of portions of existingforeign loss carryforwards for corporation tax purposes amounting to c24,739 thousand (prior yearc7,690 thousand).

The calculation of deferred taxes resulted in a surplus of deferred tax assets. Where there wasdoubt about the recoverability of the deferred tax assets due to insufficient projected earnings inthe local tax budgets, the deferred tax assets in such cases were recognised only up to theamount of the deferred tax liabilities.

No deferred tax liabilities were recognised in respect of temporary differences in connection withinvestments in subsidiaries amounting to c1,604 thousand (prior year c1,706 thousand).

Please refer also to the information under accounting policies and the details provided in Note 8.

F-46


16. Inventories

31 Dec.2010

31 Dec.2009

c’000 c’000

Germany ........................................................................................................ 46,274 46,394International ................................................................................................... 10,475 7,206

56,749 53,600

Inventories are measured respectively at the lower of cost or the net realisable selling price on thebalance sheet date less costs still to be incurred. In financial year 2010, impairment allowances oninventories were c1,567 thousand lower (prior year c1,322 thousand higher) compared with theprevious year. Impairment allowances of c1,744 thousand (prior year c1,322 thousand) wererecognised mainly as a result of excessive inventory days and lack of marketability.

Inventories consist solely of merchandise.

17. Trade receivables

All trade receivables have a remaining maturity of up to one year. Valuation allowances in respectof trade receivables were not necessary. None of the trade receivables are overdue. All of thereceivables are denominated in euros.

The Adler Group did not receive any collateral or other credit enhancements as security for tradereceivables in financial years 2010 and 2009, nor as security for outstanding invoices.

For those receivables that were neither impaired nor overdue, there were no indications at thebalance sheet date that the associated payments will not be made when they fall due.

As at 31 December 2010, trade receivables amounting in total to c1,258 thousand (prior yearc0 thousand) due from a subsidiary of BluO beta equity Limited (affiliated company) were reported.

18. Cash and cash equivalents

Cash and cash equivalents were made up as follows:

31 Dec.2010

31 Dec.2009

c’000 c’000

Balances with banks ...................................................................................... 29,370 33,579Cash-in-hand ................................................................................................. 3,586 3,412

32,956 36,991

None of the cash was subject to restrictions on disposal at the balance sheet dates.

19. Equity

Subscribed capital

The subscribed capital of Adler Modemarkte GmbH, Haibach, was unchanged at c15,860 thousandin the period under review. The equity interests of the shareholders are fully paid-up.

Capital reserves

The Company’s capital reserves amounted to c101,001 thousand at the balance sheet date. Thecapital reserves fell by c37,156 thousand in financial year 2010 from c138,157 thousand. Thedecline was the result of a withdrawal from capital reserves amounting to c39,228 thousand, anincrease in capital reserves amounting to c1,572 thousand and an income subsidy amounting toc500 thousand granted by the shareholder, which is not reported as income under therequirements of IFRS but is added directly to capital reserves.

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The withdrawal from capital reserves amounting to c39,228 thousand took the form of theassignment to AMODA GmbH of a portion of a receivable due from Adler Treasury GmbH for thesame amount. For more information, please also see Note 34. The increase in capital reserves ofc1,572 thousand was effected by offsetting a portion of the liability for the profit and loss transferfor the previous year.

In financial year 2009, the capital reserves rose by c53,100 thousand from c85,057 thousand. Theincrease was made up of two contributions to capital reserves amounting to c25,600 thousand andc13,000 thousand, together with an income subsidy amounting to c14,500 thousand granted by theshareholder, which is not reported as income under the requirements of IFRS but is added directlyto capital reserves.

By a receivables purchase and assignment agreement dated 13 October 2009, Adler Treasury hadassigned a portion of the receivables due to it from AMODA GmbH amounting to c17,500thousand to Adler Modemarkte GmbH. The purchase price amounted to c2,500 thousand. By31 December 2009, the end of the financial year, AMODA GmbH had settled receivables due toAdler Modemarkte GmbH amounting to c17,000 thousand. This resulted in the recognition of anincome subsidy amounting to c14,500 thousand. AMODA paid the remaining amount in financialyear 2010, which resulted in the recognition of an income subsidy amounting to c500 thousand.

Net accumulated losses

For details relating to the changes in net retained profits/net accumulated losses, please refer tothe information presented in the consolidated statement of changes in equity.

Dividend restrictions

The articles of association of Adler Modemarkte GmbH contain no provisions for dividendrestrictions over and above the statutory minimum.

Capital management

The Adler Group’s objectives with respect to capital management are firstly to ensure that thebusiness is able to continue operations on a long-term basis and to generate adequate returns forthe shareholders, and secondly to maintain an optimal capital structure in order to reduce the costof capital.

The capital structure is managed in such a way as to take account of changes in the generaleconomic environment and the risks attaching to the underlying assets. As a result of its healthyoperating cash flow, the Company is in a position to deploy its own financial resources in the bestpossible way. For example, investments are regularly reviewed to see whether the Company’s ownavailable financial resources can be replaced by external (lease) financing in order to takeadvantage of improved purchasing prices for goods (e.g. discounts) or to exploit advantageousopportunities for sales arising at short notice. The Adler Group is normally in constant contact withbanks for the purpose of considering the use of bank loans to optimise the return on equity.

In this context, the raising of new debt is managed on the basis of a target debt structure. Thechoice of financial instruments is mainly influenced by the objective of matching the maturities ofassets and liabilities which is achieved by managing the maturities of the instruments issued.

Capital is monitored on the basis of the indebtedness ratio, calculated as the relationship of netdebt to equity.

31 Dec.2010

31 Dec.2009

c’000 c’000

Equity............................................................................................................. 41,167 69,274Debt ............................................................................................................... 121,548 135,695

Indebtedness ratio....................................................................................... 2.95 1.96

20. Provisions for pensions and other employee benefits

The provisions for pensions comprise firstly capital commitments to employees who began theiremployment with Adler Modemarkte GmbH prior to 1980 and also individual commitments to the

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founders of the firm and certain former members of management. The amount of the provisionrecognised in the balance sheet is made up as follows:

31 Dec.2010

31 Dec.2009

c’000 c’000

Provisions for pensions (direct commitments) ............................................... 3,990 3,048Provisions for severance payments............................................................... 617 275

Provisions for company pension schemes .............................................. 4,607 3,323

The development of the pension obligations representing the present value of commitments grantedunder defined benefit plans in the Adler Group companies was as follows:

31 Dec.2010

31 Dec.2009

c’000 c’000

As at 1 Jan. .................................................................................................. 4,821 4,826Current service cost....................................................................................... 107 110Interest cost ................................................................................................... 241 268Pensions paid ................................................................................................ -403 -555Actuarial losses ............................................................................................. 537 172Change in group of consolidated companies ................................................ 1,495 0Reclassification liabilities held for sale........................................................... -11 0

As at 31 Dec. of ........................................................................................... 6,787 4,821

The associated plan assets developed as follows:

31 Dec.2010

31 Dec.2009

c’000 c’000

As at 1 Jan. .................................................................................................. 1,490 1,397Contributions (employer)................................................................................ 165 188Expected interest income .............................................................................. 61 64Pension payments (severance payments) -95 -223Actuarial gains (+)/losses (-) for the year ...................................................... -43 64

Fair value of plan assets as at 31 Dec. ..................................................... 1,578 1,490

The plan assets consist of a direct insurance policy taken out to cover the obligations arising fromseverance payments. In accordance with IAS 19, the resulting claim against the insurancecompany is offset as plan assets against the provision for severance payments required to berecognised. The premiums are paid in the respective calendar year.

The expected return on plan assets is determined on a uniform basis, taking into account long-term historical yields, the allocation of assets and estimates of the long-term yield on investmentsin the future. The actual return on plan assets in the financial year amounted to c18 thousand(prior year: c128 thousand).

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The reconciliation of the obligations with the amount of the provision is as follows:

31 Dec.2010

31 Dec.2009

c’000 c’000

Unfunded defined benefit obligation .............................................................. 5,062 3,300Wholly or partly funded defined benefit obligation......................................... 1,725 1,521

Subtotal ......................................................................................................... 6,787 4,821less fair value of plan assets ......................................................................... -1,578 -1,490

Funded status 31 Dec. ................................................................................ 5,209 3,331Actuarial gains (+)/losses (-) not yet recognised ........................................... -606 -8Reclassification liabilities held for sale........................................................... 4 0

Provision for company pension schemes as at 31 Dec. ......................... 4,607 3,323

The experience adjustments to the amounts recognised in the balance sheet were as follows:

2010 2009 2008

c’000 c’000 c’000

Experience adjustments to liabilities......................................... 537 40 125Experience adjustments to plan assets.................................... 43 -63 -39

The amounts recognised in the income statement in the period under review were made up asfollows:

2010 2009

c’000 c’000

Interest cost of defined benefit obligation ...................................................... 240 268Expected interest income from plan assets................................................... -61 -64Service cost ................................................................................................... 107 110Realised actuarial gains................................................................................. -10 -17

276 297

The expected funding for post-employment benefits plans for the financial year ending 31 December2011 amounts to c165 thousand (prior year c188 thousand).

The current employers’ contributions to the statutory pension scheme are included as an expensein the operating profit or loss for the relevant year and amounted to c5,926 thousand (prior yearc6,778 thousand) for the Group as a whole in the financial year.

The funded status of the pension provisions in prior years developed as follows:

31 Dec.2008

1 Jan.2008

c’000 c’000

Unfunded defined benefit obligation .............................................................. 3,344 3,420Wholly or partly funded defined benefit obligation......................................... 1,482 1,596Subtotal ......................................................................................................... 4,826 5,016less fair value of plan assets ......................................................................... -1,397 -1,364

Funded status 31 Dec. ................................................................................ 3,429 3,652

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21. Other provisions (non-current and current)

Restructuring/ termination

payments

Rent andincidental

rentalexpenses

Otherprovisions for

personnelexpenses

Otherprovisions Total

As at 1 Jan. 2009....................... 13,763 1,542 1,154 975 17,434

Utilisations................................... -10,282 -578 -685 -467 -12,012Additions ..................................... 1,843 1,494 553 167 4,057Reversals .................................... -3,481 -398 0 -146 -4,025Interest accrual ........................... 0 0 111 0 111

As at 31 Dec. 2009 .................... 1,843 2,060 1,133 529 5,565

Non-current ................................. 0 0 632 272 904Current ........................................ 1,843 2,060 501 257 4,661

As at 31 Dec. 2009 .................... 1,843 2,060 1,133 529 5,565

Utilisations................................... -1,533 -1,919 -691 -260 -4,403Additions ..................................... 508 1,640 451 250 2,849Reversals .................................... -264 -141 0 -5 -410Interest accrual ........................... 0 0 56 0 56Addition to group of consol.

companies ............................... 136 0 107 54 297Reclassification of discontinued

operations................................ -47 0 -71 0 -118

As at 31 Dec. 2010 .................... 643 1,640 985 568 3,836

Non-current ................................. 0 0 889 155 1,044Current ........................................ 643 1,640 96 413 2,792

As at 31 Dec. 2010 .................... 643 1,640 985 568 3,836

The obligations from restructuring activities comprise expenses associated with the closing ofstores in 2009 and 2010 in addition to provisions for termination costs.

The provision for rent and incidental rental expenses relates to additional rent payable due to rentindexation provisions and possible additional payments arising from operating income andexpenses statements.

The other provisions for personnel expenses relate to partial retirement commitments andprovisions for anniversaries and death benefits, based on actuarial assumptions and discounted toreflect the expected maturities.

Other provisions include provisions for the costs of retaining documents and also, in the prior year,provisions for onerous contracts with a non-current portion amounting to c155 thousand (prior yearc272 thousand).

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22. Financial liabilities

31 Dec.2010

31 Dec.2009

c’000 c’000

Liabilities to METRO Finance B.V. 5 1 year............... 248 46Liabilities to METRO Finance B.V. 4 1 year............... 4,360 4,802

4,608 4,848

Liabilities to Adler Treasury GmbH(affiliated company) 5 1 year............... 50 0

50 0

Liabilities to banks 5 1 year............... 57 0

57 0

Liabilities from Adler customer card 5 1 year............... 13,858 13,526

13,858 13,526

18,573 18,374

The liability to METRO Finance B.V. (affiliated company until 6 March 2009) comprises a loan at acurrent fixed rate of interest of 3.26% p.a. (interest rate fixed from 1 April 2009 to 31 March 2011).The loan paid a fixed rate of interest of 5.04% p.a. until 31 March 2009. The loan has a maturitydate of 31 July 2024 and is repaid in quarterly instalments.

The liabilities from the Adler customer card represent discount entitlements not yet utilised due tocustomers who have settled their purchases using the Adler customer card. The customers canoffset the discount entitlement obtained from making a purchase against a subsequent purchase orcan have the amount paid in cash. The amount not yet utilised at the balance sheet date isreported in full as a financial liability in accordance with the requirements of IAS 39. Since theentitlements expire at the latest on 31 December of the following year, the item is included incurrent financial liabilities. The amounts credited to customers do not bear interest.

Based on the normal payment agreements with banks and other business partners, the maturitiesof the current financial liabilities and therefore the associated cash outflows are as follows:

31 Dec.2010

31 Dec.2009

c’000 c’000

14,358 13,813of which due in the following time bands:5 30 days ..................................................................................................... 13,913 13,52630 – 90 days.................................................................................................. 149 10790 – 180 days................................................................................................ 99 61180 days – 1 year.......................................................................................... 197 120

The liabilities from the Adler customer card are presented within the ‘‘under 30 days’’ time bandsince the customers are entitled to redeem their credit at any time within twelve months. Inaccordance with IFRS 7 liabilities of this nature that are payable at any time are allocated to theearliest time band.

As at 31 December 2010, the financial liabilities were secured by items of property, plant andequipment with a carrying amount of c618 thousand and by investment property with a carryingamount of c3,374 thousand. As at 31 December 2009, the financial liabilities were secured byitems of property, plant and equipment with a carrying amount of c639 thousand and byinvestment property with a carrying amount of c3,374 thousand.

All of the financial liabilities are repayable in euros.

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23. Finance lease obligations

The Group’s property, plant and equipment include assets classified under licences and land andbuildings that are attributable to the Group as economic owner as a result of the structure of theunderlying lease agreements. The Group’s obligations arising from finance lease agreements of thisnature can be seen from the following table:

31 Dec.2010

31 Dec.2009

c’000 c’000

Finance lease agreementsFuture minimum lease payments


55,608 67,654Discounting

up to 1 year................................................................................................ -3,179 -3,9041 to 5 years ................................................................................................ -5,913 -8,452more than 5 years...................................................................................... -477 -1,112

-9,569 -13,468Present value


46,039 54,186

The finance lease agreements relate principally to leased buildings for stores. The decline in theliabilities reflects the lower amount of the obligations for rental payments.

The terms of the leases generally amount to between 5 and 20 years with renewal options. All ofthe liabilities from finance leases are repayable in euros.

24. Trade payables

Trade payables at the balance sheet date are due in their entirety, as in the previous year, to thirdparties unrelated to the Group. Also as in the previous year, all trade payables are due within oneyear.

Based on the normal payment agreements with suppliers and other business partners, thematurities of the current trade payables and therefore the associated cash outflows are as follows:

31 Dec.2010

31 Dec.2009

c’000 c’000

Carrying amount .......................................................................................... 27,829 33,135of which due in the following time bands:5 30 days ..................................................................................................... 19,426 15,10930 – 90 days.................................................................................................. 8,403 18,02690 – 180 days................................................................................................ 0 0180 days – 1 year.......................................................................................... 0 0

All of the trade payables are due in euros, as in previous years.

No collateral has been provided by the Adler Group for the trade payables reported. Goods aredelivered by suppliers subject to the retention of title provisions applying in the specific country.

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25. Other current liabilities

31 Dec.2010

31 Dec.2009

c’000 c’000

Liabilities from VAT........................................................................................ 5,093 5,234Liabilities for wages and salaries................................................................... 4,861 3,422Liabilities to Amoda GmbH (parent company) ............................................... 3,968 4,216Liabilities to customers for gift vouchers sold................................................ 2,600 2,250Liabilities for customs duties.......................................................................... 842 1,020Liabilities from wages tax .............................................................................. 622 949Social security contributions .......................................................................... 380 318Accrued lease payments ............................................................................... 363 893Employers’ liability insurance......................................................................... 331 387Deferred building cost subsidies.................................................................... 217 351Miscellaneous ................................................................................................ 225 513

19,502 19,553

Other current liabilities include financial liabilities amounting to c6,925 thousand (prior year c6,879thousand).

The liabilities to AMODA GmbH mainly reflect (in the prior year in an amount of c2,094 thousand)the remaining liability from the profit and loss transfer of Adler Modemarkte GmbH for therespective financial year. As at the end of financial year 2010, Adler Modemarkte GmbH hadgranted Adler Treasury GmbH a loan for c7,300 thousand. The loan paid interest at a rate of0.8% p.a. By a receivables purchase and assignment agreement dated 23 December 2010, AdlerModemarkte GmbH assigned this loan, the outstanding amount of the other loans of c772thousand and accrued interest amounting to c4,720 thousand to AMODA GmbH as at 31 December2010. The interest of c4,720 thousand resulted from the grant of a loan to Adler Treasury GmbHfor a total nominal amount of c47,300 thousand with disbursements in 2009 and 2010. By a nettingagreement dated 23 December 2010, Adler Modemarkte GmbH and AMODA GmbH agreed tooffset, as at 31 December 2010, the receivables amounting to c12,792 thousand due to AdlerModemarkte GmbH arising from the receivables purchase and assignment agreement dated23 December 2010 and the trade tax payments of c1,535 thousand paid by Adler ModemarkteGmbH on behalf of AMODA GmbH against the receivable due to AMODA GmbH in respect of theprofit and loss transfer for financial year 2010 amounting to c18,373 thousand.

The miscellaneous current liabilities include an amount of c26 thousand (prior year c26 thousand)in respect of the compensation entitlement of the limited partners in Alaska GmbH & Co. KG whichis limited to this amount.

26. Income tax liabilities

The income tax liabilities at the balance sheet date relate in their entirety to foreign income taxliabilities. In the previous year, this item included corporation tax liabilities amounting to c907thousand and trade tax liabilities of c339 thousand.

27. Statement of cash flows

The statement of cash flows shows the development of the Adler Group’s cash and cashequivalents in the year under review and the prior year. Cash and cash equivalents are defined forthis purpose as holdings of cash and cash equivalents less cash subject to restrictions on disposal.

In accordance with IAS 7, the cash flows are classified as cash from/used in operating activities,investing activities and financing activities.

F-54


2010 2009

c’000 c’000

Cash from (+)/ used in (-) operating activities (net cash flow) ...................... 25,800 7,192Cash from (+)/ used in (-) investing activities ................................................ -16,759 -37,842Free cash flow ............................................................................................. 9,041 -30,650Cash from (+)/ used in (-) financing activities................................................ -13,076 42,424Net decrease (-) / increase (+) in cash and cash equivalents ................. -4,035 11,774

The statement of cash flows was prepared according to the indirect method. Impairment losses arepresented on a separate line within operating cash flow.

Cash and cash equivalents as at 31 December 2010 amounted to c32,956 thousand (prior yearc36,991 thousand) and include demand deposits with banks, cheques and cash-in-hand. Therewas no cash subject to restrictions on disposal during the reporting period.

Other non-cash income and expenses amounting to c10,311 thousand (prior year c14,230thousand) include valuation allowances in respect of inventories, additions to other provisions andadditions to current financial liabilities from the Adler customer card.

The following material non-cash transactions took place in financial year 2010:

A portion amounting to c1,572 thousand of the liability of c2,094 thousand due to AMODA GmbHin respect of the profit and loss transfer agreement for the previous year was contributed to capitalreserves, while a further portion amounting to c500 thousand was granted to the Company as anincome subsidy, which is also accounted for as a contribution to capital reserves under therequirements of IFRS.

An amount of c39,228 thousand was withdrawn from capital reserves by the shareholder, but thisamount was offset against receivables due to the Company from the shareholder and the fullamount therefore had no effect on cash. The recognition of the liability from the profit and losstransfer for financial year 2010 amounting to c18,373 thousand had no effect on cash. A portionamounting to c14,327 thousand of the total amount was offset against receivables due fromAMODA GmbH. The remaining amount of c4,046 thousand had not yet been paid by the end offinancial year 2010. Please see Notes 25 and 34 for details of the amounts offset and theoutstanding liability.

Non-current assets and liabilities from finance leases both rose by c940 thousand with no effect oncash as a result of an additional finance lease agreement.

Cash flow from investing activities include cash outflows of c376 thousand resulting from the saleof MOTEX Mode-Textil-Service Logistik und Management GmbH. The purchase price for thecompany amounted to c135 thousand. As a result of the sale, cash and cash equivalents of c511thousand were disposed of.

Cash flow from investing activities also include cash outflows of c237 thousand relating to thepurchase of F.W.Woolworth Co. Ges.m.b.H. The purchase price for the company amounted toc1,761 thousand. As a result of the purchase of the company, the Group acquired cash and cashequivalents of c1,524 thousand.

The breakdown of interest paid in the financial years under review was as follows:

2010 2009

c’000 c’000

Interest paid from finance leases .................................................................. 3,865 4,639Interest paid from operating activities............................................................ 168 205

Total .............................................................................................................. 4,033 4,844

F-55


The following cash flows attributable to the discontinued operations are included in the consolidatedstatement of cash flows:

2010 2009

c’000 c’000

Cash from (+)/ used in (-) operating activities (net cash flow) ...................... 563 359Cash from (+)/ used in (-) investing activities ................................................ -131 -285

Free cash flow ............................................................................................. 432 74Cash from (+)/ used in (-) financing activities................................................ 0 0

Net increase in cash and cash equivalents .............................................. 432 74

28. Segment reporting

2010

Stores

segment

Discontinued

operations

Total

segments

Reconciliation

to IFRS Adler Group

c’000 c’000 c’000 c’000 c’000

External revenue (net)........................... 441,943 3,776 445,719 -910 444,809

Revenue with other segments (net) ...... 0 13,833 13,833 -13,833 0

Total revenue (net)................................ 441,943 17,609 459,552 -14,743 444,809

Profit or loss on goods sold .................. 217,871 13,967 231,838

Total costs............................................. -203,833 -12,557 -216,390

EBITDA 22,703 2,356 25,059 12,790 37,849

Reconciliation to profit or loss from operations

EBITDA ................................................. 37,849

Depreciation and amortisation............... -13,565

Impairment ............................................ 0

EBIT ...................................................... 24,284

Net finance costs .................................. -583

Profit from operations............................ 23,701

2009

Stores

segment

Discontinued

operations

Total

segments

Reconciliation

to IFRS Adler Group

c’000 c’000 c’000 c’000 c’000

External revenue (net)........................... 406,092 4,868 410,960 -5,114 405,846

Revenue with other segments (net) ...... 0 18,232 18,232 -18,232 0

Total revenue (net)................................ 406,092 23,100 429,192 -23,346 405,846

Profit or loss on goods sold .................. 183,835 18,486 202,321

Total costs............................................. -204,278 -17,370 -221,648

EBITDA -6,284 2,027 -4,257 16,731 12,474

Reconciliation to profit or loss from operations

EBITDA ................................................. 12,474

Depreciation and amortisation............... -15,521

Impairment ............................................ -2,322

EBIT ...................................................... -5,369

Net finance costs .................................. -3,103

Loss from operations............................. -8,472

F-56


The profit or loss on goods sold generated by the internal reporting system comprises the grossprofit on goods sold and reimbursements from suppliers.

The segment report was prepared in accordance with IFRS 8 (Operating segments). The segmentswere defined in accordance with the Group’s internal management and reporting procedures andcomprise the following reportable segments:

* stores

* textile logistics (discontinued in financial year 2010).

The stores segment comprises the Company’s entire activities relating to the stores operated bythe Adler Group.

The textile logistics segment comprises the Adler Group’s activities relating to the preparation anddistribution of textile goods. The entire textile logistics segment was sold during the financial yearas at 30 September and is therefore reported only under the profit or loss from discontinuedoperations in the financial years presented in the consolidated income statement in theseconsolidated financial statements. The reconciliation of the information presented in the segmentreport therefore relates only to the continuing operations as presented in the consolidated incomestatement. The information relating to the discontinued textile logistics segment is presentedseparately. No reconciliation has been provided to the profit or loss from discontinued operationssince that item does not appear in the internal reporting system.

Since the internal reporting system is based on the accounting requirements of the HGB, theinformation contained in the segment report has been prepared on the basis of the HGB. Inaccordance with the provisions of IFRS 8.28, a reconciliation has been provided to the accountingprinciples applied in the consolidated financial statements and therefore to the amounts presentedin the consolidated income statement.

The principal performance indicator used by the Adler Group’s decision makers for managementpurposes is the figure reported internally for EBITDA, which is defined as the profit or loss fromoperations before interest, taxes, depreciation and amortisation on property, plant and equipmentand intangible assets, and impairment.

The breakdown of the non-current assets, defined as intangible assets, property, plant andequipment and investment property, by region is as follows:

31 Dec. 2010 31 Dec. 2009

Germany International Group Germany International Group

c’000 c’000 c’000 c’000 c’000 c’000

Non-current assets............ 39,944 18,639 58,583 49,656 20,038 69,694

29. Risk management and the use of derivative financial instruments

The finance department of Adler Modemarkte GmbH monitors and manages the financial risks ofthe entire Adler Group. Specifically, those risks are

* Liquidity risks

* Market risks (interest rate and currency risks)

* credit risks

The Adler Group is exposed to a large number of financial risks as a result of its businessactivities. We understand risk to mean unexpected events and possible developments that have anegative effect on achieving the objectives we have set ourselves and our expectations. The risksthat are relevant are those with a material effect on the net assets, financial position and results ofoperations of the Company. The Group’s risk management system analyses a range of risks andattempts to minimise negative effects on the financial position of the Company. The riskmanagement activities are carried out in the finance department on the basis of establishedguidelines.

For the purpose of measuring and managing material individual risks, the Group distinguishesbetween liquidity, credit and market risks.

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Liquidity risks

We understand liquidity risk in the narrow sense to mean the risk of being able to meet present orfuture payment obligations either not at all or only on unfavourable terms. The Company mainlygenerates financial resources through its operating activities.

Adler Modemarkte GmbH functions as the financial coordinator for the companies in the AdlerGroup in order to ensure that the financial requirements for the operating business and forinvestments are covered on the most favourable terms possible in terms of cost and in amountsthat are always sufficient. The necessary information is provided via a Group financial planningprocess with additional 14-day liquidity projections on a rolling weekly basis, and is analysedconstantly.

The long-term corporate financing requirements of the Adler Group are secured by the ongoingcash flows from operating activities and from leases entered into on a long-term basis.

The intra-Group cash management system enables short-term liquidity surpluses in individualGroup companies to be used as internal financing to meet the cash requirements of other Groupcompanies. This contributes to a reduction in the volume of external debt financing and to the bestpossible use of cash deposits and capital investments, and therefore has a positive effect on thenet interest income and expenses of the Group.

At Group level, a consolidated and integrated liquidity plan is prepared using the latest businessplanning and financial projections together with additional special items that are identified at shortnotice.

The Adler Group is mainly financed by its own liquid resources generated from its operatingactivities. It has only one loan outstanding, to a company within the METRO AG group, which wasused for a property financing transaction. At the balance sheet date, the outstanding amount of theloan was c4,608 thousand (prior year c4,848 thousand). Current loan liabilities at the balancesheet date amounted to c248 thousand (prior year c46 thousand). The remaining current financialliabilities at the balance sheet date amounted to c13,965 thousand (prior year c13,526 thousand).

In financial year 2010 the shareholder granted an income subsidy amounting to c500 thousand(prior year c14,500 thousand). In addition, a capital increase was carried out in an amount ofc1,572 thousand. On the other hand, an amount of c39,228 thousand was withdrawn from capitalreserves. Neither this withdrawal nor the capital increase had any effect on cash. At the beginningof financial year 2009 an amount of c38,600 thousand was contributed to capital reserves by theformer shareholder.

Maturity analysis of financial liabilities

The table below shows the maturity structure of the contractual undiscounted cash flows fromfinancial liabilities:

31 Dec. 2010up to 1

yearover 1year

c’000 c’000

Trade payables .............................................................................................. 27,829 0Financial liabilities .......................................................................................... 14,358 5,384Liabilities from finance leases........................................................................ 12,941 42,666Other financial liabilities ................................................................................. 6,925 0

31 Dec. 2009up to 1

yearover 1

year

c’000 c’000


The undiscounted cash outflows are subject to the condition that the liabilities are repaid on theearliest due date.

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A detailed analysis of the maturity band ‘‘up to 1 year’’ is provided in Note 24 ‘‘Trade payables’’ forthe trade payables and in Note 22 ‘‘Financial liabilities’’ for the financial liabilities.

The maturities of the liabilities from finance leases ‘‘up to 1 year’’ and therefore the associatedcash outflows are as follows:

31 Dec.2010

31 Dec.2009

c’000 c’000

Total due within one year ........................................................................... 12,941 12,912of which due in the following time bands:5 30 days ..................................................................................................... 864 86430 – 90 days.................................................................................................. 2,371 2,38090 – 180 days................................................................................................ 3,235 3,223180 days – 1 year.......................................................................................... 6,471 6,445

The maturities of the other current liabilities ‘‘up to 1 year’’ and therefore the associated cashoutflows are as follows:

31 Dec.2010

31 Dec.2009

c’000 c’000

Total due within one year ........................................................................... 6,925 6,879of which due in the following time bands:5 30 days ..................................................................................................... 2,626 2,27630 - 90 days .................................................................................................. 3,968 2,09490 - 180 days ................................................................................................ 331 387180 days - 1 year .......................................................................................... 0 2,122

Credit risks

Credit risks arise from the complete or partial default of a counterparty, for example throughinsolvency, and in connection with deposits. The maximum risk of default is equal to the carryingamounts of all the financial assets. Valuation allowances are recognised in respect of tradereceivables and other receivables and assets in accordance with rules applied consistently acrossthe Group and cover all identifiable credit risks.

As part of the risk management system, minimum requirements for the credit rating and alsospecific upper limits for the exposure are laid down for all business partners of the Adler Group.The level of the upper credit limit reflects the creditworthiness of a contractual counterparty and thetypical size of the volume of transactions with that party. This is based on a systematic procedurefor approving limits set down in the Treasury guidelines, which relies firstly on the classificationsawarded by international ratings agencies and on internal credit assessments, and secondly onhistorical values experienced by the Group with the respective contractual parties. The Adler Grouptherefore has a very low exposure to credit risks.

The loans and receivables reported in the consolidated financial statements amounting to c3,161thousand (prior year c38,365 thousand) are not secured. The maximum risk of default is thereforeequal to the carrying amount of the loans and receivables reported.

Valuation allowances in appropriate amounts are generally recognised in order to take account ofidentifiable risks of default in respect of receivables.

None of the loans and receivables reported at the balance sheet date were impaired or overdue.

Market risks (interest rate and currency risks)

We understand market risk to mean the risk of loss that can arise due to a change in marketparameters used for measurement (currency, interest rates, price).

Interest rate and currency risks are significantly reduced and limited by the principles laid down inthe internal Treasury guidelines. These establish mandatory rules applied uniformly across theGroup that all hedging transactions must be subject to predetermined limits and must never resultin an increase in the risk position. At the same time, the Adler Group is fully aware that the

F-59


opportunities for increasing earnings by taking advantage of current or expected changes in interestrates or exchange rates are very limited.

The Adler Group is not exposed to currency risks since 100% of the consolidated revenue isgenerated in euros and all purchases of goods are also made in euros. All receivables, loans andfinancial liabilities are denominated in euros.

Risks due to changes in interest rates can arise mainly as a result of potential changes in thevalue of a financial instrument which is sensitive to interest rates, in response to changes inmarket rates of interest which lead to changes in the expected cash flows. In order to minimise therisk of changes in interest rates within the Adler Group, where necessary, loans are taken out onlyon a long-term basis and leases are entered into at fixed rates of interest. With the exception ofthe liability to METRO Finance B.V. (see Note 22), the Adler Group is not a party to any financialinstruments bearing a variable rate of interest. If the level of interest rates had been 100 basispoints higher at the date when the new rate of interest was determined for this liability in financialyear 2009, the interest expense for financial year 2009 would have been c5 thousand higher. If thelevel of interest rates had been 100 basis points lower at the date when the new rate of interestwas determined for this liability in financial year 2009, the interest expense for financial year 2009would have been c5 thousand lower. Since the period for which the interest rate was fixedincluded the whole of financial year 2010, there was no sensitivity to interest rates in this period.

The Adler Group is not exposed to any other material risks affecting the prices of financialinstruments. At the balance sheet date, the Group held no shares in quoted companies.

The sensitivity analysis of the available-for-sale financial assets resulted in the following potentialchanges as at 31 December 2010: In the event of an increase of 5% in the market price, equitywould have risen by c10 thousand. In the event of a decrease of 5% in the market price, equitywould have fallen by c10 thousand.

Carrying amounts and fair values of financial instruments

The table below shows the carrying amounts and fair values of the financial assets and liabilitiesfor each measurement category in accordance with IAS 39. The fair value of a financial instrumentis the amount for which an asset could be exchanged or a liability settled between knowledgeable,willing parties in an arm’ s length transaction.

31 Dec. 2010

At amortised cost

At fair value

(in equity) Total amount

Other liabilities

Loans and

receivables

Available-for-

sale financial

assets

Carrying amount

under

IAS 17

Balance sheet item

Carrying

amount

Carrying

amount

Carrying

amount

Carrying

amount

Carrying

amount Fair Value

c’000 c’000 c’000 c’000 c’000 c’000

Available-for-sale financial assets ............. — — 263 — 263 263

Cash and cash equivalents ....................... — 32,956 — — 32,956 32,956

Trade receivables...................................... — 1,338 — — 1,338 1,338

Other financial assets................................ — 1,823 — — 1,823 1,823

Total financial assets.............................. 0 36,117 263 0 36,380 36,380

Trade payables ......................................... 27,829 — — — 27,829 27,829

Financial liabilities ..................................... 18,573 — — — 18,573 18,817

Liabilities from finance leases ................... — — — 46,039 46,039 47,188

Other financial liabilities............................. 6,925 — — — 6,925 6,925

Total financial liabilities ......................... 53,327 0 46,039 99,366 100,759

F-60


31 Dec. 2009

At amortised cost

At fair value

(in equity) Total amount

Other liabilities

Loans and

receivables

Available-for-

sale financial

assets

Carrying amount

under

IAS 17

Balance sheet item

Carrying

amount

Carrying

amount

Carrying

amount

Carrying

amount

Carrying

amount Fair Value

c’000 c’000 c’000 c’000 c’000 c’000


Trade receivables...................................... — 602 — — 602 602



Trade payables ......................................... 33,135 — — — 33,135 33,135




Total financial liabilities ......................... 58,388 0 0 54,186 112,574 114,568

The fair values of the available-for-sale financial assets are determined on the basis of the marketprice available in an active market. The determination of the fair value falls under Level 1 for theinputs used in the determination of fair values in accordance with IFRS 7.

The fair values of the other financial instruments were determined on the basis of the marketinformation available at the balance sheet date using the methods and assumptions describedbelow.

In view of the short maturities of trade receivables and cash, it is assumed that the fair values areapproximately equal to the carrying amounts.

In principle, the liabilities included in the balance sheet under trade payables generally have shortremaining maturities, so that the fair values are approximately equal to the carrying amountsreported, in line with the assumption made.

Other financial assets, financial liabilities, liabilities from finance leases and other financial liabilitiesreported in the balance sheet comprise current and non-current financial assets and liabilities. Thefair values of assets and liabilities with remaining maturities of more than 1 year are calculated bydiscounting the cash flows associated with those assets and liabilities using current interest rateparameters. For this purpose, the individual credit ratings used by the Group are reflected in theform of normal market credit and liquidity spreads for the purpose of determining the presentvalues.

Net gains and losses from financial instruments by measurement category

The table below shows the net gains and losses from financial instruments reported in the incomestatement by measurement category. Interest income and expenses were the only relevant itemsfor the determination of the net gains and losses.

2010Loans andreceivables

Otherliabilities Total

c’000 c’000 c’000

from interest ................................................................ 3,538 -256 3,282

Total ............................................................................ 3,538 -256 3,282

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c’000 c’000 c’000

from interest ................................................................ 1,919 -383 1,536

Total ............................................................................ 1,919 -383 1,536

No interest income was received from impaired trade receivables during the period under review.

For information relating to the net gain or loss from available-for-sale financial assets, please seeNote 14.

Other disclosures

At the balance sheet date there were no financial assets or financial liabilities designated as at fairvalue through profit or loss. The Group had no holdings of derivative financial instruments.

30. Company acquisitions

By a purchase agreement dated 17 December 2010, Adler Modemarkte Ges.m.b.H., Ansfelden /Austria acquired all of the shares in F.W. Woolworth Co. Ges.m.b.H., Ansfelden / Austria fromAdler Treasury GmbH. The Adler Group obtained control over F.W. Woolworth Co. Ges.m.b.H on31 December 2010.

The acquired company operates a total of eight own stores in Austria which will be used from nowon to sell the Adler Group’s products. Following its acquisition by the Adler Group, F.W. WoolworthCo. Ges.m.b.H. will no longer sell its own products.

The purchase price for the company amounted to c1,761 thousand which was paid entirely incash. Goodwill amounting to c868 thousand was recognised on initial consolidation. The amountsat which this business combination is reflected in the financial statements are still preliminary. Thetransaction did not take place until the end of the reporting period with the result that thedetermination of the fair values of the assets and liabilities acquired has not yet been completed inall respects. Adjustments may therefore still be made to the amounts included in the consolidatedfinancial statements within the period of one year prescribed by IFRS 3.45 for the measurement ofthe assets and liabilities. In consequence, the determination of the goodwill is also still provisional.

The assets and liabilities acquired were as follows:Carrying

amount inFair value

in

c’000 c’000

Non-current assetsIntangible assets ........................................................................................ 1 1Property, plant and equipment ................................................................... 415 415Deferred tax assets.................................................................................... 629 719

Current assetsInventories.................................................................................................. 6 6Trade receivables....................................................................................... 821 821Other assets............................................................................................... 887 887Cash and cash equivalents ........................................................................ 1,524 1,524

LiabilitiesProvisions................................................................................................... 1,457 1,793Trade payables .......................................................................................... 650 650Other liabilities............................................................................................ 950 950Deferred tax liabilities................................................................................. 87 87

Net assets..................................................................................................... 893

Purchase price for 100% of the shares ..................................................... 1,761

Goodwill ....................................................................................................... 868

F-62


Cash acquired amounted to c1,524 thousand, resulting in an overall net cash outflow of c237thousand.

The goodwill arising as a result of the transaction is mainly due to the expansion of the salesnetwork.

The fair values of the assets and liabilities were determined on the basis of observable marketprices. Where it was not possible to determine market prices, income-based approaches or cost-based methods were used to measure the assets and liabilities acquired.

No business operations were discontinued or disposed of in the course of the acquisition.

Consolidated revenue and the current profit or loss for the period did not increase as a result ofthe acquisition of the company in 2010, since the company was not consolidated for the first timeuntil control was obtained as at 31 December 2010.

The Adler Group has revised the acquiree’s business strategy since the acquisition. From the dateof acquisition, the company has no longer reported revenues from sales of merchandise. Revenuesare generated solely from rental income and the provision of staff. The revenues and profit or lossfor the period of the acquired company amounted to c9,028 thousand and c-539 thousandrespectively in the period from 1 January 2010 to 31 December 2010.

VI. Other notes

31. Other financial obligations

As at the balance sheet date 31 December 2010, there were other financial obligations arising fromrental, lease and service agreements entered into by the Group in the ordinary course of businessthat cannot be terminated prior to maturity. The maturity analysis of the future payments arisingfrom those agreements attributable to continuing operations is as follows:

2010up to 1

year 1-5 yearsover 5years Total

c’000 c’000 c’000 c’000

Rental and lease obligations ............................... 33,656 91,889 47,356 172,901Other obligations ................................................. 27,417 0 0 27,417

Total ................................................................... 61,073 91,889 47,356 200,318

2009up to 1


c’000 c’000 c’000 c’000


Total ................................................................... 56,247 103,053 61,021 220,321

The total rental and lease obligations amounting to c172,901 thousand (prior year c196,378thousand) relate to rental and lease agreements for land and buildings in an amount of c170,010thousand (prior year c193,219 thousand) and to operating lease agreements for other facilities andoperating and office equipment in an amount of c2,891 thousand (prior year c3,159 thousand). Inthe previous year, there were also rental and lease obligations within the discontinued operationsamounting to c25,500 thousand for land and buildings and amounting to c43 thousand for otherfacilities and operating and office equipment.

In addition, there were other financial obligations of c286 thousand in the prior year attributable todiscontinued operations. These related to maintenance and service agreements for machinery andequipment, software and other operating and office equipment.

Furthermore, there were capital expenditure commitments of c27,417 thousand (prior year c23,657thousand) at the balance sheet date 31 December 2010.

F-63


The total future minimum lease payments arising from subleases amounted to c2,471 thousand(prior year c6,738 thousand) at 31 December 2010.

2010up to 1


c’000 c’000 c’000 c’000

Minimum lease payments from subleases .......... 948 1,493 30 2,471

Total ................................................................... 948 1,493 30 2,471

2009up to 1


c’000 c’000 c’000 c’000

Minimum lease payments from subleases .......... 1,039 5,699 0 6,738

Total ................................................................... 1,039 5,699 0 6,738

32. Contingent liabilities

The Group has a guarantee facility in an amount of c2,000 thousand (prior year c5,000 thousand)with Commerzbank in Saarbrucken. As at 31 December 2010 the guarantee facility was beingutilised in an amount of c1,177 thousand (prior year c586 thousand). The full amount of the facilityutilised was secured by a pledge on current accounts in favour of Commerzbank in Saarbrucken. Arental guarantee for c86 thousand (prior year c0 thousand) and a customs guarantee in an amountof c1,000 thousand (prior year c0 thousand) were also outstanding.

In the previous year there was a customs guarantee of c27 thousand attributable to thediscontinued operations.

33. Executive bodies of the Company

The following persons exercised a management function in financial year 2010 and up to the dateof preparation of the financial statements:

* Lothar Schafer (spokesman of the managing board), Villmar, managing director forbuying,

* Dr. Martin Vorderwulbecke, Munich, managing director without portfolio (resigned as at31 December 2010),

* Thomas Wanke, Brunswick, managing director for sales, marketing and visualmerchandising,

* Jochen Strack, Linden, managing director for administration.

The managing directors are the key management personnel of the Adler Group in accordance withIAS 24. Management’s compensation in financial year 2010 amounted in total to c576 thousand(prior year: c958 thousand). The compensation can be broken down as follows:

2010 2009

c’000 c’000

Fixed payments ............................................................................................. 494 437Payments in kind ........................................................................................... 9 11Bonuses......................................................................................................... 73 0Short-term employee benefits .................................................................... 576 448Termination payments ................................................................................... 0 510Termination benefits ................................................................................... 0 510

576 958

The balances outstanding as at 31 December 2010 amounted to c73 thousand (prior yearc0 thousand) and were reported under other liabilities.

Family members of key management personnel provide services to the Company.

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The total payments to former managing directors and their surviving dependants amounted to c156thousand (prior year c156 thousand). Pension provisions of c1,663 thousand (prior year c1,718thousand) have been recognised for former members of management and their survivingdependants.

The members of the supervisory board of Adler Modemarkte GmbH in financial year 2010 were asfollows:

* Markus Zollner, Bichl, industrial engineer, chairman of the supervisory board

* Oliver Apelt, Dusseldorf, managing director

* Mona Abu-Nusseira, Munich, business law graduate (from 1 March 2010)

* Dr. Hans-Michael Deml, Munich, attorney (until 28 February 2010)

* Mortimer Glinz, Munich, graduate engineer (until 31 October 2010)

* Holger Kowarsch, Hochstadt, businessman

* Frank Muller, Munich, business consultant (until 28 February 2010)

* Markus Roschel, Sasbachwalden, business administration graduate (from 1 November2010)

* Jorg Ulmschneider, Schmelz, business administration graduate (from 1 March 2010)

* Angelika Zinner, Kettenis/Belgium, chairwoman of the general works council, AdlerModemarkt Aachen (vice-chairwoman of the supervisory board, employee representative)

* Majed Abu-Zarar, Viernheim, employee at Adler Modemarket Neu-Edingen (employeerepresentative)

* Ingrid Dusmann-Schulz, Haibach, member of the works council, Adler ModemarketHaibach (employee representative)

* Corinna Gross, Neuss, secretary of the Essen district of the ver.di united services union(employee representative)

* Georg Linder, Hosbach, section head of procurement planning, Adler ModemarktHaibach (employee representative)

* Erika Ritter, secretary of the national executive board of the ver.di union, national retailsection Berlin (employee representative).

The members of the supervisory board are also key management personnel of the Adler Group inaccordance with IAS 24. The total compensation of the members of the supervisory board forattending meetings during the financial year amounted to c40 thousand (prior year c40 thousand).A member of the supervisory board is the managing director of a company which charged theCompany a total of c40 thousand in financial year 2009 for consultancy services in connection withthe restructuring programme.

34. Related party disclosures

In March 2009 Adler Modemarkte GmbH was acquired by BluO beta equity Limited, UnitedKingdom, whose place of management is Vienna, Austria. Until the date of sale in 2009, theCompany was owned by METRO AG. Accordingly, a change in the related parties took place infinancial year 2009. The related parties include the key management personnel of AdlerModemarkte GmbH. The latter are listed by name together with their compensation in Note 33Executive bodies of the Company.

All companies controlled by METRO AG or its principal owners were regarded as related partiesuntil the sale of the Company to BluO beta equity Limited in financial year 2009. The parentcompanies were AMODA GmbH (immediate parent company) and METRO AG. Since thetransaction, only companies controlled by the new owner BluO beta equity Limited and itsshareholders or legal representatives qualify as related parties. The parent companies are AMODAGmbH and BluO beta equity Limited.

MOTEX Mode-Textil-Service Logistik und Management GmbH was deconsolidated as at30 September 2010. Since that date, this company has been an affiliated company.


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The term ‘‘affiliated companies’’ refers to all companies controlled by the ultimate parent companyof the Adler Group.


2010 2009

c’000 c’000

Profit and loss transfer to parent company ................................................... 18,373 2,094Purchases of services from affiliated companies .......................................... 4,917 4,513Interest payable to affiliated companies ........................................................ 88 363Purchases of goods from affiliated companies .............................................. 0 23,550Payments to affiliated companies under property leases .............................. 0 1,909

23,378 32,429Interest receivable from affiliated companies ................................................ 3,402 1,622Sales of goods to affiliated companies .......................................................... 1,000 0Sales of services to affiliated companies ...................................................... 89 26Grant of a trademark licence to an affiliated company.................................. 0 1,800

4,491 3,448

The following balances with related parties were outstanding at the balance sheet dates:

31 Dec.2010

31 Dec.2009

c’000 c’000

Trade receivables due from affiliated company ............................................. 1,258 0Loan receivables due from affiliated company .............................................. 0 36,407

1,258 36,407

Liabilities to parent company ......................................................................... 3,968 4,216Loan liabilities to affiliated company .............................................................. 50 0

4,018 4,216

The loan receivables of c36,407 thousand as at 31 December 2009 due from an affiliated companyrepresented several short-term loans amounting in total to c35,000 thousand which paid interest ata rate of 8.0% and were disbursed in 2009. No fixed maturity was agreed for the loans which wererepayable at any time. The loan receivables of c36,407 thousand include interest amounting toc1,407 thousand. Except for an amount of c772 thousand, the loan was assigned to the parentcompany and offset against a withdrawal from capital reserves in financial year 2010 (see Note19). The amount due in respect of interest did not form part of the assignment. In financial year2010, two further short-term loans with a total amount of c12,300 thousand were extended to theaffiliated company. Interest was payable on the loans at 8% in respect of a loan with a nominalamount of c5,000 thousand and at 0.8% in respect of a loan with a nominal amount of c7,300thousand. The outstanding amounts were offset in full against liabilities due to the parent companyprior to the balance sheet date. The remaining loan of c772 thousand and accrued interestamounting to c4,720 thousand were also assigned to AMODA GmbH as at 31 December 2010.

The loan liability to an affiliated company is a loan with a short-term maturity which bears interestat 1.1%.

Family members of key management personnel provided services to the Adler Group in an amountof c40 thousand (prior year c18 thousand). Payment for the services was made on normal marketterms. In addition, items of property, plant and equipment amounting to c255 thousand (prior yearc245 thousand) were sold to companies controlled by family members of key managementpersonnel. The sale was made on normal market terms. A member of the supervisory board is themanaging director of a company which charged the Company a total of c40 thousand in financial

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year 2009 for consultancy services in connection with the restructuring programme. The amountoutstanding in respect of these transactions is c0 thousand (prior year c26 thousand).

There are no obligations from finance or operating leases due to related parties.

During financial year 2010, F.W. Woolworth Co. Ges.m.b.H. was acquired from Adler TreasuryGmbH (see Note 30), while MOTEX Mode-Textil-Service Logistik und Management GmbH wassold to BluO beta equity Limited (see Note 9).

The financial relationships with related parties set out in the tables are explained in further detail inthe following sections:

* Other operating income (see Note 2)

* Other current liabilities (see Note 25)

* Loans (see Note 22, Financial liabilities)

* Subsidies (see Liquidity risks under Note 29, and Note 19 Equity)

* Profit and loss transfer agreement (see Note 19 Equity and Note 27 Statement of cash flows)

* Other receivables (see Note 13 Other receivables and other assets)

* Trade receivables (see Note 17)

35. Earnings per share

At the date of preparation of these consolidated financial statements, the Company’s equity capitalconsists of a single share. The earnings per share are therefore the same as the consolidated netprofit or loss. There are no potential dilutive effects at the present time. The earnings per sharefigure is calculated by dividing the consolidated net profit or loss, subdivided into continuingoperations and discontinued operations, by the share.

36. Litigation and claims for damages

The Adler Group is not involved in any legal or arbitration proceedings with a significant effect onthe position of the Group. The existing proceedings have not yet been concluded and/or theamount of the obligation or of the claims cannot be reliably determined as a result of the highdegree of uncertainty.

37. Auditors’ fees

Fees amounting in total to c322 thousand (prior year c195 thousand) were incurred in financialyear 2010 for services provided by the auditor within the meaning of § 318 HGB:

2010 2009

c’000 c’000

Audit of the financial statements ................................................................... 285 145Other audit work ............................................................................................ 0 2Tax advice ..................................................................................................... 37 48Other services ............................................................................................... 0 0

Total .............................................................................................................. 322 195

38. Events after the balance sheet date

There were no matters arising after the end of the financial year up to the date of preparation ofthe annual financial statements that have a material effect on the net assets, financial position andresults of operations of financial year 2011.

Haibach, 28 February 2011

Lothar Schafer Jochen Strack Thomas WankeManaging Director Managing Director Managing Director

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The following auditor’s report (Bestatigungsvermerk) has been issued in accordance with § 322German Commercial Code (Handelsgesetzbuch) in German language on the German version ofthe consolidated financial statements and the management report of Adler Modemarkte GmbH asof and for the year ended December 31, 2010. The management report is neither included norincorporated by reference in this offering circular.

Auditors’ Report

We have audited the consolidated financial statements prepared by the Adler Modemarkte GmbH,Haibach, comprising the statement of financial position, the statement of comprehensive income,statement of changes in equity, cash flow statement and the notes to the consolidated financialstatements, together with the group management report for the business year from January 1 toDecember 31, 2010. The preparation of the consolidated financial statements and the groupmanagement report in accordance with the IFRS, as adopted by the EU, and the additionalrequirements of German commercial law pursuant to § (Article) 315a Abs. (paragraph) 1 HGB(‘‘Handelsgesetzbuch’’: German Commercial Code) is the responsibility of the parent Company’sManaging Directors. Our responsibility is to express an opinion on the consolidated financialstatements and on the group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with § 317 HGBand German generally accepted standards for the audit of financial statements promulgated by theInstitut der Wirtschaftsprufer (Institute of Public Auditors in Germany) (IDW). Those standardsrequire that we plan and perform the audit such that misstatements materially affecting thepresentation of the net assets, financial position and results of operations in the consolidatedfinancial statements in accordance with the applicable financial reporting framework and in thegroup management report are detected with reasonable assurance. Knowledge of the businessactivities and the economic and legal environment of the Group and expectations as to possiblemisstatements are taken into account in the determination of audit procedures. The effectiveness ofthe accounting-related internal control system and the evidence supporting the disclosures in theconsolidated financial statements and the group management report are examined primarily on atest basis within the framework of the audit. The audit includes assessing the annual financialstatements of those entities included in consolidation, the determination of the entities to beincluded in consolidation, the accounting and consolidation principles used and significant estimatesmade by the Companys Managing Directors, as well as evaluating the overall presentation of theconsolidated financial statements and the group management report. We believe that our auditprovides 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 withthe IFRS as adopted by the EU, and the additional requirements of German commercial lawpursuant to § 315a Abs. 1 HGB and give a true and fair view of the net assets, financial positionand results of operations of the Group in accordance with these requirements. The groupmanagement report is consistent with the consolidated financial statements and as a wholeprovides a suitable view of the Group’s position and suitably presents the opportunities and risks offuture development.

Stuttgart, February 28, 2011

PricewaterhouseCoopersAktiengesellschaftWirtschaftsprufungsgesellschaft

Rudiger DreselWirtschaftsprufer(German Public Auditor)

ppa. Axel OstWirtschaftsprufer(German Public Auditor)

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Audited consolidated financial statementsof Adler Modemarkte GmbH

as at 31 December 2009 (IFRS)

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Consolidated income statement for the financial year from1 January 2009 to 31 December 2009

NotesNo. 2009 2008

c ‘000 c ‘000

Revenue ................................................................................... 1 410,824 474,603Other operating income............................................................ 2 18,249 23,404Cost of materials ...................................................................... 3 -204,254 -239,602Personnel expenses ................................................................. 4 -91,757 -128,173Other operating expenses ........................................................ 5 -118,410 -157,412

EBITDA .................................................................................... 14,652 -27,180

Depreciation and amortisation.................................................. 6 -16,218 -20,379Impairment ............................................................................... 6 -2,394 -7,852

EBIT ......................................................................................... -3,960 -55,411

Other interest and similar income ............................................ 1,704 786Interest and similar expenses................................................... -4,845 -6,977

Net finance costs ................................................................... 7 -3,141 -6,191

Loss from operations ............................................................ -7,101 -61,602

Income taxes ............................................................................ 8 -177 2,357

Consolidated net loss for the year ....................................... -7,278 -59,245

of which attributable to non-controlling interests ...................... 9 0 0of which attributable to shareholders of Adler Modemarkte

GmbH -7,278 -59,245

Consolidated statement of comprehensive incomefor the financial year from 1 January to 31 December 2009

NotesNo. 2009 2008

c ‘000 c ‘000

Consolidated net loss for the year ....................................... -7,278 -59,245

Other comprehensive income................................................... 0 0

Consolidated total comprehensive income ......................... -7,278 -59,245

of which attributable to non-controlling interests ...................... 0 0of which attributable to shareholders of Adler Modemarkte

GmbH................................................................................... -7,278 -59,245

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Consolidated balance sheet as at31 December 2009

ASSETSNotes

No.31 Dec.

200931 Dec.

20081 Jan.2008

c ‘000 c ‘000 c ‘000

Non-current assetsIntangible assets ................................................. 10 2,560 5,067 4,799Property, plant and equipment ............................ 11 63,760 80,741 114,934Investment property ............................................ 12 3,374 0 0Loans to related parties ...................................... 13 0 0 213Other receivables and other assets .................... 14 707 1,027 1,333Deferred tax assets............................................. 15 2,243 2,056 4,148

Total non-current assets .................................. 72,644 88,891 125,427

Current assetsInventories........................................................... 16 53,600 62,539 66,267Trade receivables................................................ 17 602 3,657 5,282Other receivables and other assets .................... 14 41,132 9,620 24,978Cash and cash equivalents ................................. 18 36,991 25,217 25,497

Total current assets.......................................... 132,325 101,033 122,024

Total ASSETS .................................................... 204,969 189,924 247,451

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EQUITY and LIABILITIESNotes

No.31 Dec.

200931 Dec.

20081 Jan.2008

c ‘000 c ‘000 c ‘000

EQUITYCapital and reservesSubscribed capital............................................... 15,860 15,860 15,860Capital reserves .................................................. 138,157 85,057 33,468Net accumulated losses ...................................... -84,743 -75,371 -16,126

69,274 25,546 33,202Non-controlling interests...................................... 0 0 0

Total equity........................................................ 19 69,274 25,546 33,202

LIABILITIESNon-current liabilitiesProvisions for pensions and other employee

benefits ........................................................... 20 3,323 3,547 3,851Other provisions .................................................. 21 904 1,059 916Financial liabilities ............................................... 22 4,802 4,995 4,995Finance lease obligations.................................... 23 45,178 54,222 87,227Deferred tax liabilities.......................................... 15 313 63 259

Total non-current liabilities .............................. 54,520 63,886 97,248

Current liabilitiesOther provisions .................................................. 21 4,661 16,375 6,152Financial liabilities ............................................... 22 13,572 15,840 22,874Finance lease obligations.................................... 23 9,008 8,578 9,869Trade payables ................................................... 24 33,135 34,721 42,516Other liabilities .................................................... 25 19,553 23,856 29,703Income tax liabilities ............................................ 26 1,246 1,122 5,887

Total current liabilities...................................... 81,175 100,492 117,001

Total liabilities ................................................... 135,695 164,378 214,249

Total EQUITY and LIABILITIES ........................ 204,969 189,924 247,451

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Consolidated statement of changes in equityfor the financial year from January 2009 to 31 December 2009

Notes

No.

Sub-

scribed

capital

Capital

reserves

Net

accumu-

lated

losses

Attrib. to

share-

holders of

Adler

Mode-

markte

GmbH

Attrib. to

non-

controlling

interests

Total

equity

c ‘000 c ‘000 c ‘000 c ‘000 c ‘000 c ‘000

As at 1 Jan. 2008 ...................... 15,860 33,468 -16,126 33,202 0 33,202

Income subsidies from

shareholders.......................... 0 48,809 0 48,809 0 48,809

Losses assumed by

shareholders.......................... 0 2,780 0 2,780 0 2,780

Total transactions with

shareholders........................ 0 51,589 0 51,589 0 51,589

Consolidated net loss for the

year1...................................... 0 0 -59,245 -59,245 0 -59,245

Consolidated total

comprehensive income1 0 0 -59,245 -59,245 0 -59,245

As at 31 Dec. 2008.................... 15,860 85,057 -75,371 25,546 0 25,546

As at 1 Jan. 2009 ...................... 15,860 85,057 -75,371 25,546 0 25,546

Income subsidies from

shareholders.......................... 0 14,500 0 14,500 0 14,500

Contribution to capital reserves .. 0 38,600 0 38,600 0 38,600

Transfer to shareholders ............ 0 0 -2,094 -2,094 0 -2,094

Total transactions with

shareholders........................ 0 53,100 -2,094 51,006 0 51,006

Consolidated net loss for the

year1...................................... 0 0 -7,278 -7,278 0 -7,278

Consolidated total

comprehensive income1 ..... 0 0 -7,278 -7,278 0 -7,278

As at 31 Dec. 2009.................... 19 15,860 138,157 -84,743 69,274 0 69,274

1 Since there are no items of other comprehensive income, the consolidated net loss for the year is the same as the consolidatedtotal comprehensive income

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Consolidated statement of cash flows for the financial year from1 January 2009 to 31 December 2009

NotesNo. 2009 2008

c ‘000 c ‘000

Consolidated net loss before tax ......................................... -7,101 -61,602(+) Depreciation and amortisation on property, plant and

equipment and intangible assets.......................................... 16,218 20,379(+) Impairment losses............................................................... 2,394 7,852Decrease (-) in pension provisions........................................... -225 -304Gains (-)/losses (+) from the sale of non-current assets.......... 325 -7,110Other non-cash income (-) and expenses (+) .......................... 14,230 20,962Net finance costs...................................................................... 3,141 6,191Interest received....................................................................... 264 783Interest paid ............................................................................. -205 -686Income taxes paid .................................................................... -82 -464Decrease (+) in inventories ...................................................... 7,617 2,136Decrease (+) in trade receivables and other receivables......... 5,246 4,872Decrease (-) in trade payables, other liabilities and other

provisions ............................................................................. -34,599 -17,262Increase (+)/decrease (-) in other balance sheet items ........... -31 1,730

Net cash from (+)/used in (-) operating activities(Net cashflow)......................................................................... 27 7,192 -22,523

Proceeds from disposals of non-current assets ....................... 908 650Payments for investments in non-current assets ..................... -3,750 -11,831Proceeds from the repayment of loans and short-term deposits 0 15,214Payments for short-term deposits ............................................ -35,000 0

Net cash from (+)/used in (-) investing activities ................ 27 -37,842 4,033

Free cashflow ......................................................................... 27 -30,650 -18,490

Cash flows from the issue (+) / repayment (-) of currentfinancial liabilities ................................................................. 0 -1

Losses assumed by shareholders ............................................ 2,780 0Repayments of borrowings....................................................... -222 -5,184Capital contributions by shareholders ...................................... 53,100 40,000Payments in connection with finance lease liabilities ............... -13,234 -16,605

Net cash from financing activities........................................ 27 42,424 18,210

Net increase (+) / decrease (-) in cash and cashequivalents ......................................................................... 27 11,774 -280

Cash and cash equivalents at beginning of the period ............ 25,217 25,497Cash and cash equivalents at end of the period...................... 36,991 25,217

Net increase (+) / decrease (-) in cash and cashequivalents ......................................................................... 27 11,774 -280

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Notes to the consolidated financial statementsas at 31 December 2009


Adler Modemarkte GmbH is a corporation (Kapitalgesellschaft) in accordance with German law andits registered office is at Industriestrasse 1-5, Haibach, Federal Republic of Germany. The relevantregistration court is located in Aschaffenburg.

Its financial year is the calendar year. The financial years of all the companies included in theconsolidated financial statements also end on 31 December of the calendar year.

The consolidated financial statements were prepared by the management on 11 February 2011and authorised for publication.

The Adler Group (Adler Modemarkte GmbH and its subsidiaries) is engaged in apparel retailingand operates specialist clothing stores in Germany, Luxembourg and Austria. Under the tradename ‘‘ADLER’’, the Group operates specialist clothing stores either on a stand-alone basis or aspart of specialist store or shopping centres. It also operates specialist clothing stores together withother retailers at locations operated jointly. The range of goods offered by the ADLER storesincludes womenswear, menswear and kids’ wear.

The Adler Group also provides logistics services, including to third parties, through MOTEX Mode-Textil-Service Logistik und Management GmbH. The services comprise distribution, processing,handling, consignment, labelling, the finishing of semi-finished products and the transportation oftextile industry goods in Germany and abroad using its own and third-party vehicles.

Until the end of 2008, the Group company ADLER Atelier Moden GmbH produced clothing for salein the ADLER stores; a very small proportion was sold to third parties. The Company has notcarried out any operating activities since that time. ADVERS Versicherungsmakler GmbH providedinsurance broking services for the Adler Group until it ceased its operating business activities atthe end of 2008. Since the beginning of 2009, the company has been used to process the AdlerGroup’s cash pooling transactions.

The euro (c) is both the presentation currency and the functional currency of the Adler Group. Thefigures in the notes to the consolidated financial statements are quoted in thousands of euros(c ‘000).

The sole shareholder in Adler Modemarkte GmbH is AMODA GmbH, Haibach. The ultimatecontrolling company is BluO beta equity Limited, Birmingham, United Kingdom, whose place ofmanagement is Vienna, Austria.


Accounting policies

These financial statements represent the first IFRS consolidated financial statements of AdlerModemarkte GmbH in accordance with the provisions of IFRS 1. Until financial year 2007, theCompany prepared voluntary consolidated financial statements in accordance with IFRS, but didnot do so as at 31 December 2008. The Company therefore qualifies once again as a first-timeadopter of IFRS as at 31 December 2009 in accordance with IFRS 1. No consolidated financialstatements in accordance with any other accounting standards were published in earlier years. Thereconciliations required by IFRS 1 have not been presented, since at the date of the openingbalance sheet only IFRS consolidated financial statements are available and no consolidatedfinancial statements in accordance with any other accounting requirements.

The Adler Group did not make use of any of the exemptions permitted by IFRS 1 for the purposeof the first-time preparation of the IFRS consolidated financial statements as at 31 December 2009.

The consolidated financial statements of Adler Modemarkte GmbH were prepared in accordancewith the requirements of the International Accounting Standards Board (IASB), London, inconformity with International Financial Reporting Standards (IFRS), as adopted by the EU. Theinterpretations issued by the IFRS Interpretations Committee (formerly the International FinancialReporting Interpretations Committee and the Standing Interpretations Committee) were alsoapplied.

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Those International Financial Reporting Standards (IFRS) were applied that had become mandatoryby the balance sheet date 31 December 2009. There was no early adoption of standards whoseapplication had not yet become mandatory as at 31 December 2009.


The following standards, amendments to standards and interpretations have already been issuedbut are mandatory only for reporting periods beginning on or after 1 January 2010. These will beapplied by the Adler Group from 1 January 2010, or a date that may be prescribed later, and theGroup has estimated the expected effects of the individual standards, amendments to standardsand interpretations on its net assets, financial position and results of operations, to the extent thatit was possible to make such an estimate at this stage.

Mandatoryfrom*

Adoptedby EU

Commission

StandardsIFRS 1 +IFRS 7

Exemption from certain disclosures in the notes................. 1 Jul. 2010 Yes

IFRS 1 Additional exemptions for first-time adopters ...................... 1 Jan. 2010 YesIFRS 2 Group cash-settled share-based payment transactions ...... 1 Jan. 2010 YesIFRS 3 Purchase price components for business combinations ..... 1 Jul. 2009 YesIFRS 7 Transfers of financial assets ............................................... 1 Jul. 2011 NoIFRS 9 Financial instruments: classification and measurement of

financial assets....................................................................1 Jan. 2013 No

IAS 12 Income taxes ....................................................................... 1 Jan. 2012 NoIAS 24 Related party disclosures .................................................... 1 Jan. 2011 YesIAS 27 Consolidated and separate financial statements................. 1 Jul. 2009 YesIAS 32 Classification of rights issues .............................................. 1. Feb. 2010 YesIAS 39 Financial instruments: recognition and measurement:

eligible hedged items...........................................................1 Jul. 2009 Yes

various Annual improvements project (2009) .................................. mostly 1 Jan.2010

Yes

various Annual improvements project (2010) .................................. mostly 1 Jan.2011

No

InterpretationsIFRIC 12 Service concession arrangements ...................................... 31 Mar. 2009 YesIFRIC 14 Prepaid contributions with existing minimum funding

requirements .......................................................................1 Jan. 2011 Yes

IFRIC 15 Agreements for the construction of real estate ................... 1 Jan. 2010 YesIFRIC 16 Hedges of a net investment in a foreign operation ............. 1 Jul. 2009 YesIFRIC 17 Distributions of non-cash assets to owners......................... 1 Nov. 2009 YesIFRIC 18 Transfers of assets from customers.................................... 1 Nov. 2009 YesIFRIC 19 Extinguishing financial liabilities with equity instruments ..... 1 Jul. 2010 Yes


* The amendment to IFRS 1 in the course of the amendments to IFRS 7 exempts first-timeadopters of IFRS from certain disclosures in the notes introduced in IFRS 7. The amendmentto IFRS 1 now also grants entities applying IFRS for the first time an optional exemption fromthe requirement to present comparative information for measurements at fair value and forliquidity risk. IFRS 7 permits these exemptions in cases where the comparable periods endprior to 31 December 2009. This ensures that first-time adopters of IFRS also benefit fromthe transitional provisions for the application of the revised IFRS 7. The amendments to IFRS1 and IFRS 7 must be applied at the latest from the start of the first financial year beginningafter 30 June 2010.

The amendments to IFRS 1 include additional exemptions for first-time adopters of IFRS. Theamendments relate to the retrospective application of IFRS in particular circumstances and areintended to ensure that entities do not incur disproportionately high costs in converting to IFRS.Specifically, the amendments exempt

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* entities in the oil and gas industry that have recorded exploration and development costs forsites in the development or production phases in a geographical region on a combined basisin cost centres in line with national accounting requirements from the obligation to apply IFRSretrospectively in full to the relevant oil and gas assets, and

* entities with existing leasing contracts from the need to reassess these contracts with respectto their classification in accordance with IFRIC 4 ‘‘Determining whether an ArrangementContains a Lease’’, if a determination in accordance with national accounting requirementsthat are similar to the provisions of IFRIC 4 has already been made at an earlier balancesheet date.

Application of the amendments to IFRS 1 is mandatory at the latest from the start of the firstfinancial year beginning after 31 December 2009. Earlier application is permitted. The Adler Groupis already a first-time adopter of IFRS in these present consolidated financial statements. Theamendments to IFRS 1 will therefore not be relevant for the Adler Group in the future.

* The IASB has issued amendments to IFRS 2 ‘‘Share-based Payment’’ which clarify theaccounting treatment of cash-settled share-based payments within a group. The amendmentsmake clear that:

* An entity that receives goods or services in a share-based payment arrangement mustaccount for those goods or services irrespective of which entity in the group settles therelated obligation and whether the obligation is settled in shares or cash.

* In IFRS 2 a ‘group’ has the same meaning as in IAS 27 ‘‘Consolidated and SeparateFinancial Statements’’, that is, it includes only the parent company and its subsidiaries.

The amendments published clarify the scope of IFRS 2 and the interaction of IFRS 2 withother standards. The amendments to IFRS 2 also incorporate into the standard guidancepreviously included in IFRIC 8 ‘‘Scope of IFRS 2’’ and IFRIC 11 ‘‘IFRS 2: Group andTreasury Share Transactions’’. The IASB has therefore withdrawn IFRIC 8 and IFRIC 11. Theamendments are effective for reporting periods beginning on or after 1 January 2010. Theyare applicable retrospectively. Earlier application is permitted. No items of this nature arecurrently present within the Adler Group. The amendments to IFRS 2 therefore have no effecton the net assets, financial position and results of operations of the Adler Group.

* IFRS 3 (Revised) ‘‘Business Combinations’’ (effective from 1 July 2009). The new IFRS 3includes provisions relating to the scope of the standard, the components of the purchaseprice, the treatment of non-controlling interests and goodwill, and also to the extent of theassets, liabilities and contingent liabilities required to be recognised. The standard alsocontains requirements for the accounting treatment of losses brought forward and for theclassification of contracts to which the acquiree is party. The revised standard retains the useof the acquisition method for business combinations but introduces material changes to thedetermination of the cost of acquisition. For example, the adjustment of the cost of acquisitionin the event that the purchase price agreement is dependent on future events must beincluded in the determination of the purchase price at the fair value at the date of acquisitionirrespective of the probability that those events will occur. Subsequent changes to the fairvalue of contingent purchase price components classified as liabilities must generally berecognised prospectively in profit or loss. The Adler Group will apply IFRS 3 (Revised) for itsfinancial years beginning on 1 January 2010.

* The amendments to IFRS 7 published in October 2010 result in a broad alignment of thecorresponding disclosure requirements under International Financial Reporting Standards(IFRS) and US Generally Accepted Accounting Principles (US GAAP). The amendments toIFRS 7 relate to expanded disclosure requirements for the transfer of financial assets and areintended to allow users of financial statements to improve their understanding of the effects ofthe risks remaining with the transferring entity. Application of the amendments is mandatoryfor financial years beginning on or after 1 July 2011. Earlier application is permitted. Thepresentation of comparative information is optional in the first year of application. The AdlerGroup is not in a position to estimate the effects of these amendments at the present time.

* IFRS 9 ‘‘Financial Instruments: Classification and Measurement’’ was published in November2009 (IFRS 9 2009). This standard forms part of the project to replace IAS 39, intended to becompleted in 2010. The standard deals with the classification and measurement of financialassets. As a result of IFRS 9, the existing measurement categories loans and receivables,

F-77


held-to-maturity investments, available-for-sale financial assets and financial assets at fairvalue through profit or loss are replaced by two categories: assets measured at amortisedcost and those measured at fair value. The determination whether a financial instrument canbe classified as measured at amortised cost depends both on the entity’s business model, i.e.how the entity manages its financial instruments, and on the product characteristics of theparticular instrument. Financial instruments that do not meet the criteria for inclusion in theamortised cost category must be measured at fair value through profit or loss. Measurementat fair value directly in equity is permitted for selected equity instruments. The characteristicsof this new category are not the same as those of the existing category ‘‘available-for-salefinancial assets’’. IFRS 9 (2009) contains no provisions relating to the measurement offinancial liabilities. IFRS 9 (2010) was published as a supplement to IFRS 9 (2009) in October2010. IFRS 9 (2010) contains additional provisions to those of IFRS 9 (2009) relating to theclassification and measurement of financial liabilities and to the derecognition of financialassets and liabilities. IFRS 9 (2010) contains no significant changes for financial liabilities,with the exception of the fair value option. Under the fair value option, changes in fair valueas a result of the entity’s own credit risk are recorded in other comprehensive income, whileall other changes in fair value are reported in profit or loss (one-step approach). With respectto derecognition, IFRS 9 (2010) incorporates the provisions of IAS 39 currently in force. IFRS9 is effective for financial years beginning on or after 1 January 2013. Earlier applicationstarting in 2009 is permitted. The application of these amendments within the EU still requiresendorsement by the prescribed EU process. The Adler Group is not a position to estimate theeffects of the new standard at the present time.

* In December 2010 the International Accounting Standards Board (IASB) publishedamendments to IAS 12 Income Taxes. These amendments also entail changes to the scopeof SIC-21 Income Taxes – Recovery of Revalued Non-Depreciable Assets. The amendmentpartially clarifies the treatment of temporary taxable differences in connection with the use ofthe fair value model prescribed by IAS 40. The amendment provides that it will normally beassumed that taxable differences will reverse as a result of a sale of the underlying asset.The amendment is applicable retrospectively for financial years beginning on or after 1January 2012. First-time application of the amendment will not have any effects on the netassets, financial position or results of operations of the Adler Group.

* The amendments to IAS 24 were published in November 2009. The changes affectinggovernment-related entities will not have any effects on the presentation of the financialinformation. The amendments to IAS 24 also clarified the definition of a related party. Therevised standard is effective for reporting periods beginning or after 1 January 2011. Earlierapplication is permitted. The Adler Group is not a state-controlled entity and does notanticipate any effects on the presentation of its financial information resulting from theamendments to IAS 24.

* IAS 27 (Revised), ‘‘Consolidated and Separate Financial Statements under IFRS’’ (effectivefrom 1 July 2009). The revised standard prescribes the mandatory application of theeconomic entity approach for the accounting treatment of purchases and sales of shares thattake place after control is obtained and that do not result in a loss of control. Under thisapproach, minority transactions of this type are regarded as transactions with owners andrecorded within equity. In the case of share sales resulting in a loss of control, any gain orloss on disposal is recorded in the income statement. If shares continue to be held followingthe loss of control, the shares retained are recognised at their fair value. The differencebetween the previous carrying amount of the shares retained and their fair value is reportedin profit or loss as part of the gain or loss on disposal and must be disclosed separately inthe notes together with the corresponding remeasured amount of the shares retained. In thecase of step acquisitions or partial disposals of shares, the standard requires the sharesalready held or the shares retained, respectively, to be remeasured at fair value through profitor loss. In addition, losses attributable to noncontrolling interests which result in thenoncontrolling interests having a deficit balance must be presented in future as negativecarrying amounts within consolidated equity. The Adler Group does not anticipate that thefirst-time application of the revised standard will have any material effects on its net assets,financial position and results of operations.

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* Amendments to IAS 32 ‘‘Financial Instruments: Presentation’’. The amendments prescribedthe accounting treatment in the financial statements of the issuer for subscription rights,options and warrants for the purchase of a fixed number of equity instruments that aredenominated in a currency other than the functional currency of the issuer. Previously, suchcases were accounted for as derivative liabilities. Subscription rights that are issued pro ratato the existing shareholders of an entity for a fixed amount of currency must be classified asequity. The currency in which the exercise price is denominated is irrelevant for this purpose.The Adler Group does not anticipate that the first-time application of the revised standard willhave any effects on its net assets, financial position and results of operations and expectsthat the matters addressed will not apply to the Adler Group.

* Amendments to IAS 39 ‘‘Financial Instruments: Recognition and Measurement’’ – eligiblehedged items (effective from 1 July 2009). In these amendments, the IASB sets out:

– the conditions under which inflation risks can be designated as a hedged item forhedging purposes, and

– the possibility of using options as a hedging instrument for hedging one-sided risks.

* The IASB publishes annual improvements to existing standards. These consist of minorchanges in the majority of cases. The changes resulting from the annual improvementsprojects for 2009 and 2010 are not presented here on the grounds that they are not material.The Adler Group will apply the changes as at 1 January 2010 (2009 improvements project)and as at 1 January 2011 (2010 improvements project). It is not possible to make anestimate of the effects on the net assets, financial position or results of operations of theGroup and the presentation of its financial information at the present time.

* IFRIC 12 is effective for financial years beginning on or after 31 March 2009. IFRIC 12 dealswith the accounting treatment of certain service concession arrangements where a public-sector body contracts with a private operator. This interpretation has no application within theAdler Group.

* Amendment to IFRIC 14 The Limit on a Defined Benefit Asset, Minimum FundingRequirements and their Interaction. The amendment to IFRIC 14 applies in the rare cases inwhich an entity is subject to minimum funding requirements and makes prepaid contributionsin order to meet those requirements. The amendment allows the entities in these cases torecord the benefit of such prepayments as an asset. This interpretation has no applicationwithin the Adler Group.

* IFRIC 15 Agreements for the Construction of Real Estate. IFRIC 15 makes clear in whatcircumstances agreements for the construction of real estate are subject to the provisions ofIAS 11 or of IAS 18. IFRIC 15 also contains guidance on when revenue should berecognised in the case of agreements for the construction of real estate that fall within thescope of IAS 18. This interpretation has no application within the Adler Group.

* IFRIC 16 Hedges of a Net Investment in a Foreign Operation. IFRIC 16 clarifies what shouldbe regarded as the risk in the hedge of a net investment in a foreign operation and whichentity within a group can hold the hedging instrument used to reduce this risk. Thisinterpretation has no application within the Adler Group.

* IFRIC 17 Distributions of Non-cash Assets to Owners. IFRIC 17 clarifies and explains theaccounting treatment of non-cash dividends to owners of an entity. This interpretation has noapplication within the Adler Group.

* IFRIC 18 Transfers of Assets from Customers. IFRIC 18 clarifies and explains the accountingtreatment for the transfer from a customer of items of property, plant and equipment or ofcash for the construction or purchase of an item of property, plant and equipment. Thisinterpretation has no application within the Adler Group.

* IFRIC 19: Extinguishing Financial Liabilities with Equity Instruments. IFRIC 19 explains therequirements of IFRS where an entity extinguishes all or part of a financial liability by meansof the issue of shares or other equity instruments. The interpretation makes clear that theequity instruments issued to a creditor for the purpose of extinguishing a financial liabilityrepresent ‘‘consideration paid’’ in accordance with IAS 39.41 and that the relevant equityinstruments must be measured in principle at fair value. If the fair value cannot be reliablydetermined, the equity instruments must be measured at the fair value of the liabilityextinguished and the difference between the carrying amount of the financial liability

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derecognised and the amount at which the equity instruments issued were initially recognisedmust be reported in the income statement. This interpretation has no application within theAdler Group.

These consolidated financial statements are based on the historical cost principle. The incomestatement was prepared using the nature of expense method. Items in the consolidated balancesheet are classified according to their maturities. Assets and liabilities falling due within one yearare reported as current. Assets and liabilities are classified as non-current if they remain within theGroup for longer than one year. Trade receivables and payables and also inventories are of anexclusively short-term nature and are therefore reported under the current items.

The accounting policies set out below were applied for the purpose of preparing the consolidatedfinancial statements.


In addition to Adler Modemarkte GmbH, the following three German and two foreign subsidiaries inwhich Adler Modemarkte GmbH directly or indirectly holds the majority of the voting rights havebeen included in the consolidated financial statements:


in % Currency

Subscribedcapital in

localcurrency inthousands

ADLER Atelier Moden GmbH, Haibach .......................... 100 EUR 67ADVERS Versicherungsmakler GmbH, Haibach ............ 100 EUR 25MOTEX Mode-Textil-Service Logistik und Management

GmbH, Horselgau....................................................... 100 EUR 26ADLER Modemarkte Gesellschaft m.b.H., Vosendorf /

Austria ........................................................................ 100 EUR 37ADLER Mode S.A., Foetz / Luxembourg........................ 100 EUR 31

ALASKA GmbH & Co. KG, Munich, in which the Group has no shareholding, has also beenincluded in the consolidated financial statements as a special purpose entity in accordance withSIC 12 on the basis of a rental agreement with ADLER Modemarkte GmbH (relating to anadministration building in Haibach).

Consolidation principles

Subsidiaries are all companies in which the Group has the power to govern the financial andoperating policies and generally holds more than 50% of the voting rights. In assessing whethercontrol exists, the existence and effect of potential voting rights that are currently exercisable orconvertible are taken into account where relevant. Subsidiaries are included in the consolidatedfinancial statements from the date on which control is obtained by the Group (full consolidation).They are no longer consolidated from the date on which control is lost.

The financial statements of the German and foreign subsidiaries included in the consolidatedfinancial statements are prepared using uniform accounting policies in accordance with IAS 27.

Intra-Group profits and losses, revenues and income and expenses are eliminated, together withreceivables and liabilities existing between subsidiaries consolidated. Receivables and liabilities tothe same third-party company are offset where the relevant conditions are met. Intercompanyprofits are eliminated. Deferred tax assets and liabilities are recognised in respect of temporarydifferences arising from consolidation adjustments in accordance with IAS 12 (Income Taxes).

Consolidation of subsidiaries

Subsidiaries acquired are accounted for using the acquisition method. The cost of the acquisition isthe fair value of the assets given, the equity instruments issued and the liabilities incurred orassumed at the date of the transaction plus costs directly attributable to the acquisition. Theacquiree’s identifiable assets, liabilities and contingent liabilities in a business combination aremeasured on initial consolidation at their fair values at the date of the transaction, irrespective ofthe extent of any minority interests.

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Any excess of the cost of acquisition over the Group’s share of the net assets measured at fairvalue is recognised as goodwill; if the cost of the acquisition is lower than the net assets of thesubsidiary acquired measured at fair value, the difference is recognised immediately in profit orloss.

Currency translation

Business transactions in foreign currencies in the separate financial statements of subsidiariesprepared in euros are measured at the rate of exchange at the date when the transaction isinitially recorded. Exchange rate gains and losses arising up to the balance sheet date from thetranslation of receivables and liabilities are reflected in the financial statements; gains and lossesresulting from movements in exchange rates are reported in profit or loss.

III. Accounting policies

The accounting policies are applied in principle on a consistent basis.

Non-current assets and depreciation and amortisation

* Intangible assets

Purchased intangible assets are recognised at cost.

All purchased intangible assets with finite useful lives are amortised on a straight-line basis.Amortisation is based on the following economic useful lives applied consistently across the Group:

* concessions, rights, licences: 3 to 7 years or the shorter contractual term where relevant* software: 3 to 5 years

Internally generated intangible assets mostly comprise software. Costs associated with theoperation or maintenance of software are expensed when incurred. Costs incurred directly inconnection with the production of identifiable individual software products over which the Group hascontrol are recognised as an intangible asset if it is regarded as probable that the intangible assetwill generate future economic benefits, is technically feasible and if the costs can be reliablydetermined. The directly attributable costs include personnel costs for the employees involved indevelopment and other costs directly attributable to the development of software. Finance costs arenot capitalised as a component of cost. Capitalised development costs for computer software witha finite useful life are amortised on a straight-line basis over the period of its expected use butsubject to a maximum of five years.

If impairment in excess of the amortisation charged is identified, the asset is written down to therecoverable amount.

There were no intangible assets with indefinite useful lives during the period under review.

* Property, plant and equipment

Items of property, plant and equipment used in the operation of the business for more than oneyear are measured at cost less depreciation. Significant components of an item of property, plantand equipment are recognised and depreciated separately. Subsequent costs are recognised as acomponent of the cost of the asset only if it is probable that future economic benefits will flow tothe Group as a result and if the costs can be reliably determined. All other repair and maintenanceexpenses are recognised as expenses in the income statement in the financial year in which theyare incurred.

Depreciation is not charged on land. For all other assets depreciation is charged on a straight-linebasis over the following expected useful lives of the assets:

– buildings including investment property: 33 years

– operating facilities: 3 to 10 years

– operating and office equipment: 3 to 10 years

– vehicles: 4 to 6 years

– lessee’s fixtures: 10 years.

The carrying amounts and useful economic lives are reviewed at each balance sheet date andadjusted where necessary. If the carrying amount of an asset is higher than its estimatedrecoverable amount, it is immediately written down to the latter. Gains and losses from disposals of

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items of property, plant and equipment are calculated as the difference between the proceeds ofsale and the carrying amount, and are recorded in profit or loss.

Investment property

Investment property comprises land and buildings held in order to generate rental income and/orfor the purposes of capital appreciation and that are not used in the ordinary course of business. Itis measured at fair value. The fair value was determined by a property expert.

Leasing

Leases are classified as finance leases if substantially all of the risks and rewards of ownershipare transferred to the lessee under the terms of the lease. All other leases are classified asoperating leases.

Non-current assets that are rented or leased and where the relevant Group company haseconomic ownership (finance leases) are recognised at the present value of the minimum leasepayments or the lower fair value and depreciated over their useful lives in accordance with therequirements of IAS 17 (Leases). If it is not sufficiently certain at the start of the lease thatownership will transfer to the lessee, the asset must be depreciated over the shorter of the term ofthe lease and the useful life.

The corresponding liability to the lessor is reported in the balance sheet as a finance leaseobligation under liabilities from finance leases. The lease payments are apportioned between thefinance charge and the reduction of the lease obligation so as to produce a constant periodic rateof interest on the remaining balance of the liability.

Lease payments made under the terms of an operating lease are reported as an expense in theincome statement on a straight-line basis over the term of the lease.

Special purpose entities

Special purpose entities are set up to achieve a particular purpose and must be consolidated if theGroup is able to exercise control over the special purpose entity. This is assessed on the basis ofthe following criteria:

* Are the activities of the special purpose entity being conducted according to the Group’sspecific needs so that the Group obtains benefits from the activities of the special purposeentity

* Does the Group have the decision-making powers to obtain the majority of the benefits of thespecial purpose entity’s activities

* Does the Group have the right to obtain the majority of the benefits of the special purposeentity’s activities and is it therefore potentially exposed to risks incident to the special purposeentity’s activities

* Does the Group retain the majority of the residual or ownership risks related to the specialpurpose entity or its assets in order to obtain benefits from its activities.

If the existence of control is established in this way, the special purpose entity is included in theconsolidated financial statements.

Impairment of non-monetary assets

Assets with indefinite useful lives are not depreciated or amortised; they are tested for impairmentannually or whenever there are indications that an asset may be impaired. Assets subject todepreciation or amortisation are reviewed for impairment if relevant events or changes incircumstances indicate that the carrying amount may no longer be recoverable. Any impairmentloss recognised is equal to the excess of the carrying amount over the recoverable amount. Therecoverable amount is the higher of the fair value of the asset less selling costs and the value inuse. For the purposes of the impairment test, assets are combined at the lowest level for whichcash flows can be separately identified (cash-generating units).

If an impairment charge is subsequently reversed, the carrying amount of the asset (of the cash-generating unit) is increased to the newly estimated recoverable amount. For this purpose, thehigher carrying amount resulting from the increase may not exceed the amount that would havebeen determined, net of depreciation or amortisation, if no impairment charge had been recognisedin respect of the asset (the cash-generating unit) in prior years. A reversal of an impairment charge

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is recognised immediately in profit or loss. Impairment charges recognised in respect of goodwillmay not be reversed.

Government grants

Government grants are recorded at their fair value if it is reasonably certain that the grant will bemade and that the Group will comply with the conditions necessary for receipt of the grant.Government grants in respect of costs are recorded over the period during which the related costs,for which the grant is intended to compensate, are incurred.

The Group receives government grants, that are recorded as income, as compensation for costsarising in connection with partial retirement agreements. As a result of the conditions attached tothese government grants, the Group is under an obligation to keep open the positions occupied bypartially retired employees and to recruit new employees to fill them.

Building cost subsidies

Building cost subsidies are either paid to the lessor by the Group company for the purpose ofupgrading the property or granted by the lessor for independent building work for the constructionof the store. Building cost subsidies paid are accounted for as other assets and are expensed overthe remaining minimum term of the contract. Building cost subsidies received are reported as otherliabilities and reversed to income over the minimum term of the contract.

Current income taxes

The applicable rate of income tax is calculated on the basis of the tax laws in force on the balancesheet date for the countries in which the Company’s subsidiaries operate. The applicable rates ofincome tax for the particular countries are between 17.2% and 30.0% (prior year: 17.2% and31.0%). Adequate and appropriate provisions are recognised for expected tax payments on thebasis of these tax laws.

A profit and loss transfer agreement and tax grouping for income tax purposes was in placebetween Adler Modemarkte GmbH and its shareholder AMODA GmbH with the result that AdlerModemarkte GmbH as a member of the tax group had no income tax liability. The profit and losstransfer agreement was terminated on 30 September 2010 with effect as at 31 December 2010.Since 1 January 2011, the tax grouping has no longer been in place. Since no liability to make taxpayments was incurred by Adler Modemarkte GmbH, no tax expense was recorded until thecessation of the grouping for tax purposes. Following the termination of the grouping for taxpurposes as at 31 December 2010, the effects of actual taxes have been included in the financialstatements for the first time from 1 January 2011. Future income tax liabilities or benefits areincluded in the financial statements of companies not forming part of the grouping for tax purposes.

Deferred taxes

In accordance with IAS 12, deferred taxes are recognised for all temporary differences between thetax bases of the assets and liabilities and their carrying amounts in the IFRS consolidated financialstatements (liability method). Deferred taxes are measured on the basis of the tax rates and taxlaws in force or substantively enacted at the balance sheet date and which are expected to applyat the date of realisation of the deferred tax asset or settlement of the deferred tax liability.Deferred tax assets are recognised to the extent that it is probable that taxable profit will beavailable against which the temporary difference can be utilised. If it is sufficiently certain that it willbe possible to utilise the future tax benefit resulting from loss carryforwards in future periods, adeferred tax asset is recognised.

IAS 12.39 provides that deferred taxes on temporary differences in connection with investments insubsidiaries should be recognised in the consolidated financial statements only when the followingcriteria are not met:

– the parent company, shareholder or joint venture partner is in a position to control the timingof the reversal of the temporary difference; and

– it is probable that the temporary difference will not reverse in the foreseeable future.

This is not the case within the Adler Group. The temporary difference generally reverses only whenthe company is sold. At the present time the Adler Group is not planning to dispose of anysubsidiaries but, on the other hand, it would be in a position to control the timing of any disposal.

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No deferred taxes are recognised in the consolidated financial statements of the Adler Group inrespect of temporary differences relating to investments in subsidiaries.

No deferred taxes were recognised in respect of differences between the tax bases and theamounts currently included in the financial statements within Adler Modemarkte GmbH during theperiod of the grouping of companies for tax purposes, since the reversal of these differences wouldnot have resulted in a tax effect. As a consequence of the termination of the tax grouping betweenAdler Modemarkte GmbH and AMODA GmbH as at 31 December 2010, deferred taxes wererequired to be recognised for the first time as at 31 December 2010 in respect of differences inmeasurement between the IFRS carrying amounts and the tax bases of assets and liabilities.Deferred taxes were recognised for all companies not forming part of the tax grouping inaccordance with the requirements of IAS 12.


Inventories

Merchandise accounted for as inventories is generally carried at the lower of cost and netrealisable value. Net realisable value is the amount of the estimated sale proceeds achievable inthe normal course of business less the necessary variable costs of sale. The cost of productionincludes all directly attributable costs and appropriate portions of necessary overheads anddepreciation in addition to direct materials and production costs. Cost is determined using theweighted average method. Borrowing costs have not been included in the cost of inventories.

Receivables and other assets

* Trade receivables

Trade receivables are recorded initially at fair value and measured in subsequent periods atamortised cost less any impairment losses. An impairment charge is recorded in respect of tradereceivables if there are objective indications that the amounts of receivables due are not collectiblein full. The amount of the impairment charge is measured as the difference between the carryingamount of the receivable and the present value of the estimated future cash flows from thatreceivable, determined using the effective interest rate method. The impairment charge is reportedin profit or loss. Trade receivables are classified under the loans and receivables category.

* Derivative financial instruments

The Adler Group did not make use of any derivative financial instruments in the period underreview.

* Other receivables and other assets and loans

Other receivables and other assets and loans are recorded initially at fair value and measured insubsequent periods at amortised cost using the effective interest method – in the case of non-current loans – less any impairment losses. Appropriate valuation allowances are recognised inrespect of any risks existing. At each balance sheet date the carrying amounts of financial assetsnot measured at fair value through profit or loss are reviewed for objective indications ofimpairment (such as significant financial difficulties on the part of the debtor, a high probability ofinsolvency proceedings against the debtor, a significant change in the technological, economic orlegal environment, or in the market environment of the Issuer or a permanent decline in the fairvalue of the financial asset to below amortised cost). Any impairment charge, based on a lower fairvalue in comparison with the carrying amount, is reported in the income statement. If it becomesclear at subsequent measurement dates that the fair value has risen objectively as a result ofevents that occurred after the date when the impairment charge was recognised, the impairmentcharge is reversed through profit or loss in the relevant amount. The fair value determined for thepurpose of reviewing possible impairment losses in respect of loans and receivables measured atamortised cost is equal to the present value of the estimated future cash flows, discounted at theoriginal effective rate of interest.

Other receivables and other assets and loans are allocated to the loans and receivables category.

Financial assets are generally recorded at the trade date.

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Cash and cash equivalents include cash, demand deposits and other short-term highly liquidfinancial assets with an original term of no more than three months. Overdrafts utilised arereported as liabilities to banks under current financial liabilities.

Equity

Equity consists of subscribed capital, capital reserves and retained earnings. The subscribed capitalrepresents the nominal capital of the parent company. Capital reserves comprise all capitalamounts contributed to the Company from external sources that are not subscribed capital. Theinterests of other shareholders in the equity of the Company are reported as non-controllinginterests.

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation arising asa result of a past event, it is probable that an outflow of resources embodying economic benefitswill be required to settle the obligation and the amount of the provision can be reliably estimated.Where there is a number of similar obligations, the likelihood that an outflow of resources will berequired is determined by considering that class of obligations as a whole. Provisions are stated atthe expected settlement amount after taking into account all identifiable associated risks and arenot offset against rights of recourse.

Where the effect of the time value of money is material, non-current provisions are carried at thesettlement amount discounted to the balance sheet date. The discount rate used for this purpose isa pre-tax rate of interest reflecting the current market assessment of the economic situation andthe risks specific to the obligation.

Employee benefits

* Pension obligations

The Adler Group has a number of different benefit plans. They include both defined benefit anddefined contribution plans. Defined contribution plans are post-employment plans under which anenterprise pays fixed contributions into a separate entity (such as a fund or insurancearrangement) and has no legal or constructive obligation to pay further contributions, even if thefund or the entitlements from the insurance agreement entered into do not have sufficient assets topay all employee benefits relating to employee service in the current reporting period and priorperiods. A defined benefit plan is a post-employment plan other than a defined contribution plan.

The agreements underlying the defined benefit plans provide for different benefits within the Groupdepending on the particular subsidiary. The latter mainly comprise

* pension entitlements once the relevant pensionable age is reached,

* one-off payments on cessation of employment.

The provision relating to defined benefit plans carried in the consolidated balance sheet iscalculated as the present value of the pension obligation at the balance sheet date less the fairvalue of any plan assets available, after taking into account unrecognised actuarial gains andlosses and any past service cost not yet recognised.

The actuarial calculation of the pension provisions for the Company’s old age pensions is based onthe projected unit credit method prescribed by IAS 19 (Employee Benefits). An actuarial valuationis carried out by independent actuarial experts for this purpose at each balance sheet date. Theprojected unit credit method takes account of the known pensions and vested benefits at thebalance sheet date and includes increases in salaries and pensions expected in the future. Thevaluations are based on the legal, economic and tax environment of the individual country. Theobligations, which exist solely in the European economic area, were measured using an actuarialrate of interest of 5.25% (prior year 5.85%), projected annual wage and salary increases of 2.0%(prior year 2.5%) and projected annual pension increases of 1.5% (prior year 2.0%). Employeeturnover is determined for each specific company and taken into account on the basis of age andlength of service. The actuarial valuations are mostly based on specific mortality tables for eachcountry. The provision is made up of the present value of the expected benefits less the fair valueof the plan assets plus or minus any actuarial gains and losses not yet recognised. The expectedreturn on the plan assets was assumed to be 4.0% (prior year 4.5%).

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The accumulated actuarial gains and losses resulting from the differences arising over the yearsbetween the projected pension obligations and plan assets and the actual amounts at the year-endare only recognised if they lie outside a range of 10% of the higher of the pension obligations andthe plan assets. In this event, the excess is divided by the average remaining working lives of theactive employees participating in the plan and recorded as an additional expense or item ofincome. Past service cost for benefits that have not yet vested is allocated over the remainingworking life until the entitlement vests. The cost relating to benefits that have already vested isrecognised as an expense immediately. The interest component of the addition to provisionsincluded in the pension expenses (interest cost for pension obligations and expected income fromplan assets) is reported as interest expense within personnel expenses.

Payments out of a defined contribution benefits plan are included in profit or loss and reportedwithin personnel expenses.

* Obligations for severance payments

Employees who began their service in Austria on or after 1 January 2003 participate in a definedcontribution benefits plan. Obligations arising from severance payments for employees whoseservice began prior to 1 January 2003 are covered by defined benefit plans. When service isended by the company or pensionable age is reached, or in the case of invalidity or death,participating employees receive a severance payment which amounts to a multiple of their basicmonthly salary – depending on their length of service – subject to a maximum of twelve months’salary. A maximum of three months’ salary is paid immediately on cessation of service, while thepayment of any further amounts is distributed over a period of several months. In the event ofdeath, the heirs of participating employees are entitled to 50% of the severance payment.

* Termination benefits

Termination benefits are paid when an employee is dismissed prior to the normal retirement dateor when an employee leaves employment voluntarily in return for a termination payment. TheGroup recognises termination benefits immediately when it is demonstrably and irrevocablycommitted to terminate the employment of current employees on the basis of a detailed formalplan which cannot be withdrawn, or when it is demonstrably required to pay termination benefits onthe voluntary termination of employment by employees. Payments falling due more than twelvemonths after the balance sheet date are discounted to their present value. The entitlements totermination benefits are reported under provisions for personnel expenses. This item also includesportions of the entitlements arising from the German provisions relating to partial retirementarrangements.

Liabilities

* Financial liabilities

Financial liabilities are recorded at fair value on initial recognition and measured at amortised costin subsequent periods. Differences between the historical cost and the repayment amount of non-current liabilities are reflected in the financial statements using the effective interest method.Financial liabilities measured at amortised cost are recognised initially at fair value, taking intoaccount transaction costs.

Loan liabilities are classified as current if repayment is due within the following twelve months.

Discount entitlements not yet utilised by customers are also reported in current financial liabilities.Customers are awarded these entitlements whenever they make a purchase using the Adlercustomer card. Within a specifically defined period, customers can offset these discountentitlements against a subsequent purchase or have the amount paid out in cash. The amountincluded in financial liabilities represents customers’ discount entitlements not yet utilised at thebalance sheet date.

* Liabilities from finance leases

Lease liabilities are recognised if economic ownership of the leased or rented leased assets isattributable to companies of the Adler Group and the assets are capitalised under property, plantand equipment (finance leases). On initial recognition, the lease obligations are recorded at the fairvalue of the leased asset or, if lower, the present value of the lease payments.

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For this purpose, the finance charge is apportioned over the term of the lease in such a way thata constant periodic rate of interest over time is produced on the outstanding balance of the financelease liability.

* Trade payables and other liabilities

Trade payables and other liabilities are carried at amortised cost. Trade payables and other currentliabilities are reported under other liabilities.


Contingent liabilities are possible or present obligations resulting from past events but for which anoutflow of resources is estimated to be not probable. Under IAS 37, obligations of this nature arenot recorded in the balance sheet but are disclosed in the notes to the financial statements.

Recognition of income and expenses

Revenue represents the fair value of the consideration received or receivable for the sale of goodsand services in the ordinary course of business. Revenue is reported net of VAT and afterdeducting rebates and discounts. Customers’ entitlements to refunds relating to goods delivered arerecorded in the income statement once the relevant invoices have been examined. Sales whichgive the customer the right to acquire loyalty points are accounted for initially as a liability in theamount of the fair value of the loyalty points using the deferred revenue method in accordancewith IFRIC 13 and are recognised as revenue only when the points are utilised or expire. Thecorresponding obligation from loyalty points not yet utilised is reported under deferred income.Within the Adler Group, a loyalty points programme required to be accounted for in accordancewith the provisions of IFRIC 13 was offered only for a short time during the reporting period. Therelated liability in respect of the deferral of revenue is included in deferred income as at 31December 2008. The programme expired at the end of April 2009 and loyalty points not utilised bythat time were therefore recognised as revenue. No further programmes were offered during thereporting period.

Where customers making purchases with the Adler customer card acquire an entitlement to aparticular discount, the discount is recorded as a reduction in revenue. The liability is reportedwithin financial liabilities. The liability is reversed when the discount is utilised. If customers allowtheir discount entitlements to expire, the amount not utilised is reported within revenue.

Revenue and other operating income is generally recognised only when the services have beenperformed or the goods or products have been delivered and the risks of ownership havetransferred to the customer. Retail sales are settled in cash or using an EC or credit card. Thecard company’s charges are recorded in other operating expenses. The Group’s business policy isthat the end user acquires its products with a right of return. This right of return is quantified onthe basis of historical amounts and deducted from revenue.

Expenses are recognised when the goods or services are utilised or when the expense is incurred.This also applies to the recognition of advertising expenses. The latter are recorded in accordancewith the provisions of IAS 38 when the service – in this case the provision of advertising services– has been performed for the Adler Group and not at the later date when the Adler Group isconducting the relevant advertising campaigns.

Rental income and expenses are recorded as revenue or expenditure on an accruals basis in theperiod to which they relate.

Net finance costs

Interest income and interest expenses are recorded on an accruals basis in the period to whichthey relate using the effective interest method, based on the outstanding balance of the loan andthe applicable interest rate. The applicable interest rate is the rate of interest that discounts theestimated future cash flows over the term of the financial asset to its net carrying amount.

In the case of a finance lease agreement, payments received are apportioned between the financecharge and the reduction of the outstanding liability using mathematical methods.

Borrowing costs are reported in the income statement in the period in which they are incurred,except for borrowing costs required to be capitalised in respect of qualifying assets.

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Litigation and claims for damages

The companies in the Adler Group are involved in a range of legal and administrative proceedingsin the course of their general business operations or similar proceedings could be initiated orclaims asserted in the future. Although the outcome of individual proceedings cannot be predictedwith certainty given the imponderable factors involved in legal disputes, it is currently estimatedthat they will have no material adverse effect on the results of operations of the Group over andabove the risks reflected in the financial statements in the form of liabilities or provisions.

Use of estimates and assumptions

The preparation of the consolidated financial statements has involved the making of assumptionsand use of estimates that have affected the reporting and the amount of the assets, liabilities,income and expenses recognised and of the contingent liabilities. These estimates andassumptions relate principally to the establishment of uniform economic useful lives used acrossthe Group, the assessment of whether impairment charges are required for inventories, themeasurement of provisions, pensions and risks specific to individual locations, together with therecoverability of future tax benefits in particular those arising from loss carryforwards. The actualamounts may differ in particular cases from the estimates and assumptions made. Revisedamounts are reflected at the date when improved knowledge becomes available.

Our estimates are based on historical amounts and other assumptions considered to be accuratein the particular circumstances. The actual amounts may differ from the estimates made. Theestimates and assumptions are reviewed on an ongoing basis. The true and fair view principle isalso applied to the use of estimates.

Income taxes

The Group has a liability to pay income taxes in various countries in accordance with differentparticular bases of assessment. The global provision for taxes is recognised on the basis of theprofit determined in accordance with local tax regulations and the applicable local rates of tax.

The amount of the tax provisions and liabilities is based on estimates of whether and in whatamount income taxes will become payable. Risks arising from the possibility of a differenttreatment for tax purposes are reflected, where necessary, in provisions for the appropriateamount.

In addition, it is necessary to make estimates in order to assess the recoverability of deferred taxassets. The key factor in assessing the recoverability of deferred tax assets is the estimation of thelikelihood that future profits for tax purposes (taxable income) will be available.

Uncertainties relating to the interpretation of complex tax regulations and the amount and timing offuture taxable income must also be taken into account. Especially in view of the internationalstructure of the Group, differences between actual events and our assumptions, or future changesin those assumptions, may result in revised amounts for the tax charge or benefit in future periods.

Provisions

Assumptions about the likelihood of an outflow of resources occurring have to be made for thepurpose of determining whether to recognise provisions. These assumptions represent the bestpossible assessment of the circumstances underlying the particular provision but are subject to anelement of uncertainty given the inevitable use of assumptions. Assumptions also have to be madeabout the amount of any outflow of resources for the purpose of measuring the provisions. Achange in the assumptions can therefore result in a revised amount for the provision. Accordingly,the use of assumptions can also give rise here to an element of uncertainty.

The determination of the present value of pension obligations depends primarily on the choice ofthe discount rate of interest and the other actuarial assumptions which must be formulated afreshat the end of each financial year. For this purpose, the underlying discount rate is the rate ofinterest on corporate bonds with high credit ratings, denominated in the currency in which thepayments are made and with the same maturity structure as the pension obligations. Changes inthese interest rates may result in material revisions to the amount of the pension obligations.

Impairment

For the purpose of reflecting risks specific to individual locations in the financial statements (mainlythe estimation of anticipated losses from operating lease agreements and the impairment of financelease agreements relating to store rents), an adjusted EBIT for a particular planning horizon isestimated for locations with ongoing losses. This is then compared with objectively determined

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rents in order to calculate the extent of any failure to cover future rents and/or to adjust thecarrying amounts to a recoverable amount determined under the assumption either that the locationwill continue in its present use or that it will be used for a different purpose.

The fair value of land and buildings being tested for impairment is normally based on a valuationby an independent expert. Expert opinions on the market values of property, plant and equipmentare subject to an element of uncertainty as a result of the unavoidable use of assumptions.

All identifiable risks at the date of preparation of the consolidated financial statements wereincluded in the context of the underlying estimates and assumptions.

IV. Notes to the income statement

1. Revenue

Revenue (net) is generated almost entirely from sales of goods and is distributed geographically asfollows:

2009 2008

c’000 c’000

Germany ........................................................................................................ 336,992 394,824Austria ........................................................................................................... 60,873 65,880Luxembourg ................................................................................................... 12,959 13,899

410,824 474,603

2. Other operating income

2009 2008

c’000 c’000

Rental income................................................................................................ 4,344 4,813Income from the reversal of provisions ......................................................... 4,025 2,969Commissions ................................................................................................. 2,898 3,397Licence income.............................................................................................. 2,466 831Income from the reversal of other liabilities................................................... 2,152 422Recharged costs / cost reimbursements ....................................................... 779 1,047Income from damages ................................................................................... 289 185Income from disposals of non-current assets................................................ 134 8,261Government subsidies for personnel expenses............................................. 133 227Miscellaneous ................................................................................................ 1,029 1,252

18,249 23,404

The rental income was generated from subletting to store concessionaires.

An amount of c6,501 thousand of the income from disposals of non-current assets in the prior yearresulted from the fact that a building complex leased under the terms of a finance lease (theadministration building and warehouses of MOTEX Mode-Textil-Service Logistik und ManagementGmbH) was disposed of in the course of the negotiations for a new lease agreement andcontinued to be used under the terms of an operating lease. The lease agreements for a furtherfour stores that had been classified to date as finance leases were also terminated prematurely.The disposal resulted in income amounting to c1,467 thousand.

Licence income amounting to c1,800 thousand was generated from the grant of a trademarklicence to an affiliated company.

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3. Cost of materials

2009 2008

c’000 c’000

Purchased goods........................................................................................... 204,254 239,596Purchased services ....................................................................................... 0 6

204,254 239,602

4. Personnel expenses

2009 2008

c’000 c’000

Wages and salaries ....................................................................................... 75,392 106,945Other social security contributions................................................................. 7,600 10,395Employers’ contributions to statutory pension scheme.................................. 7,639 9,911Expenses for old-age part time ..................................................................... 808 712Expenses for partial retirement/death benefits/anniversaries ........................ 318 210

91,757 128,173

The sharp reduction in personnel expenses mostly reflects the personnel costs caused byrestructuring activities included in the prior year and the lower number of employees in 2009.

The average number of people employed by the Group during the reporting period was:

2009 2008

Managers....................................................................................................... 155 157Salaried employees ....................................................................................... 1,001 1,249Part-time workers .......................................................................................... 3,767 4,857Trainees......................................................................................................... 200 228

5,123 6,491

The fall in the number of employees is the result of the restructuring activities in financial year2009.

5. Other operating expenses

2009 2008

c’000 c’000

Lease payments and building expenses........................................................ 56,549 58,152Advertising costs ........................................................................................... 32,212 47,232Technical facilities.......................................................................................... 8,883 12,498Consultancy expenses................................................................................... 4,814 4,460Administrative expenses ................................................................................ 3,681 5,797External cleaning costs.................................................................................. 3,250 3,439Consumables ................................................................................................. 2,398 2,999Office expenses ............................................................................................. 1,389 2,115Incidental costs of monetary transactions ..................................................... 1,012 1,119Losses from disposals of non-current assets ................................................ 460 1,151Costs of terminating contracts ....................................................................... 0 12,915Miscellaneous ................................................................................................ 3,762 5,535

118,410 157,412

The costs of terminating contracts in financial year 2008 were incurred as a result of therestructuring activities undertaken (including the termination of rental agreements).

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6. Depreciation, amortisation and impairment

The amounts of depreciation and amortisation are presented in the consolidated statement ofchanges in non-current assets.

In financial year 2009, impairment losses amounting to c448 thousand were recognised in respectof the rights to the ‘‘VIVENTY by Bernd Berger’’ trademark acquired under the terms of a financelease. The recoverable amount is equal to the value in use. As a result of continuous negativegross income relating to the ‘‘VIVENTY by Bernd Berger’’ line, the intangible asset was written offin full. The fair value less costs to sell is equal to the value in use.

Impairment losses totalling c1,439 thousand were also recorded in financial year 2009 in respect ofinternally generated intangible assets. Of this amount, c1,367 thousand related to internallygenerated logistics software and c72 thousand to a computer-based incentive pay system. Therecoverable amounts of the assets are equal in each case to their values in use. In view of theadjusted remaining useful lives, the assets and/or components were therefore written down in full.

Also in financial year 2009, impairment losses amounting in total to c1,072 thousand wererecorded in connection with the reclassification of one property into investment property. Theportion of the property no longer utilised by the Company itself was reclassified out of property,plant and equipment. Of the total impairment charge, c900 thousand related to the investmentproperty, c53 thousand to land and c119 thousand to buildings. The property was written down toits fair value including land. This amounted to c4,020 thousand as at 31 December 2009.

Impairment losses amounting to c759 thousand were incurred in the prior year for stores markedfor closure. In this connection, an impairment charge of c546 thousand was also recognised inrespect of property, plant and equipment capitalised under the terms of a finance lease. Therecoverable amounts of the assets are equal in each case to their values in use. The assets werewritten off in full. Because of the development of the economy in financial year 2008, the assets ofMOTEX Mode-Textil-Service Logistik und Management GmbH were tested for impairment as at31 December 2008. The impairment test was carried out at the level of the MOTEX Mode-Textil-Service Logistik und Management GmbH cash-generating unit. In the light of the recoverableamounts determined, an impairment charge of c6,547 thousand was recognised. Of the totalimpairment charge, an amount of c250 thousand was allocated to intangible assets, c112 thousandto buildings, c4,602 thousand to technical equipment and machinery and c1,583 thousand to otheritems of property, plant and equipment. The recoverable amount was determined using adiscounted cash flow model. The calculation was based on cash flow projections over a 6-yearperiod. A post-tax discount rate of 8.84% p.a. was applied. On the basis of the detailed projectionsused, no deduction was made from the discount rate in respect of anticipated growth in the cashflows.

In the current financial year, reversals of impairment losses amounting to c565 thousand wererecorded under impairment since only some of the intended closures of stores actually took place.The impairment charges previously recognised in respect of the property, plant and equipment ofthose stores which continued to be operated were reversed up to the assets’ original depreciatedcost.

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7. Net finance costs

Net finance costs comprise the items below analysed by the items giving rise to them as follows:

2009 2008

c’000 c’000

Interest incomeReceivables from affiliated companies .......................................................... 1,407 160Receivables from banks ................................................................................ 210 169Repayment of tax .......................................................................................... 0 451Other.............................................................................................................. 87 6

1,704 786

Interest expenseInterest expense from finance leases ............................................................ -4,639 -6,290Liabilities to affiliated companies ................................................................... -185 -261Liabilities to banks ......................................................................................... -15 -409Payment of additional tax .............................................................................. 0 -12Other.............................................................................................................. -6 -5

-4,845 -6,977

Net finance costs......................................................................................... -3,141 -6,191

The increase in interest income arising from receivables from affiliated companies is mainlyattributable to the loan granted to Adler Treasury GmbH in financial year 2009. The interest incomefrom banks relates to ongoing current account balances. Both items were classified under theloans and receivables category. In financial year 2008, interest income was recorded forrepayments of tax related to company tax audits in respect of the period 1999 – 2004.

The reduction in the interest portion of the lease payments arising from finance lease agreementsmainly resulted from the fact that a building complex leased under the terms of a finance lease(the administration building and warehouses of MOTEX Mode-Textil-Service Logistik undManagement GmbH) was reclassified in the course of the negotiations for a new lease agreementand continued to be used under the terms of an operating lease. In addition, four leaseagreements classified as finance leases were terminated early in financial year 2008.

All interest income and interest expenses arising from financial assets and financial liabilities werecalculated using the effective interest method.

The interest included in net finance costs represents the total amount of interest income andexpenses calculated using the effective interest method.

8. Income taxes

The income tax expense was made up as follows:2009 2008

c’000 c’000

Current tax expense (-) / benefit (+) .............................................................. -113 4,252Deferred taxes ............................................................................................... -64 -1,895

-177 2,357


A profit and loss transfer agreement and tax grouping for income tax purposes is in place betweenAdler Modemarkte GmbH and AMODA GmbH with the result that Adler Modemarkte GmbH as amember of the tax group has no income tax liability.

The current tax benefit in financial year 2008 was mainly the result of repayments of corporationtax relating to financial years before the tax grouping was in place.

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The tax rate of 27.000% applied for the German company is made up of corporation tax amountingto 15.825% (including the solidarity surcharge of 5.500%) and the trade tax rate of 11.150%.Foreign income taxes are calculated on the basis of the laws and regulations in force in theparticular countries. The overall tax rate applicable for the Adler Group amounts to 27.000%. Thetax rates are unchanged from the previous year.

The calculation of deferred taxes is based on the tax rates expected to apply in the individualcountries when the deferred tax asset is realised or the liability is settled; these generally reflectthe tax laws in force or enacted at the balance sheet date.

The differences between the income tax expense actually recorded and the expected income taxexpense are shown in the following reconciliation. The expected income tax expense is calculatedfrom the profit or loss before taxes multiplied by the applicable income tax rate.

2009 2008

c’000 c’000

Consolidated net loss before taxes ............................................................... -7,101 -61,602Applicable rate of income tax ........................................................................ 27.00% 27.00%Expected income tax expense ................................................................... -1,917 -16,633

Effects of differing foreign tax rates ......................................................... 120 170

Effects of differing German tax rates ........................................................ 14 12

Tax effectsDeferred and current taxes not recognised due to grouping of companies for

tax purposes.............................................................................................. 2,009 15,670Items added back for tax purposes ............................................................... 44 52Tax-exempt income ....................................................................................... -98 -45Prior-period tax benefits ................................................................................ -11 -5,280Current taxable losses not recognised .......................................................... 403 1,519Effects of deferred tax assets not recognised ............................................... -383 2,195Other differences ........................................................................................... -4 -17

Total tax effects ........................................................................................... 1,960 14,094

Actual tax expense ...................................................................................... 177 -2,357

Effective rate of tax ....................................................................................... -2.49% 3.83%

9. Non-controlling interests in the consolidated net loss for the year

There were no non-controlling interests in the consolidated net loss for the year. The consolidatednet loss for the year is attributable in its entirety to the owners of Adler Modemarkte GmbH.

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V. Notes to the balance sheet

10. Intangible assets

The intangible assets comprise internally generated software as well as purchased software, rightsand licences. The internally generated intangible assets represent capitalised development costs forlogistics software and for a computer-based incentive pay system.

The development of intangible assets in financial year 2009 was as follows:

Software,

rights and

licences

Licences under

finance leases

Internally

generated assets Pre-payments Total

c’000 c’000 c’000 c’000 c’000

Cost 1 Jan. 2009 ......................... 22,612 828 2,913 1,009 27,362Additions ....................................... 1,074 0 0 0 1,074Disposals ...................................... -3 0 0 0 -3Transfers....................................... 1,009 0 0 -1,009 0As at 31 Dec. 2009 ...................... 24,692 828 2,913 0 28,433Amortisation 1 Jan. 2009 ........... -21,252 -173 -620 0 -22,045Additions ....................................... -1,004 -207 -480 0 -1,691Disposals ...................................... 0 0 0 0 0Transfers....................................... 0 0 0 0 0As at 31 Dec. 2009 ...................... -22,256 -380 -1,100 0 -23,736Impairment 1 Jan. 2009 .............. -52 0 -198 0 -250Additions ....................................... 0 -448 -1,439 0 -1,887Disposals ...................................... 0 0 0 0 0Reversals ...................................... 0 0 0 0 0As at 31 Dec. 2009 ...................... -52 -448 -1,637 0 -2,137

Net book value 31 Dec. 2008 ..... 1,308 655 2,095 1,009 5,067

Net book value 31 Dec. 2009 ..... 2,384 0 176 0 2,560

The development of intangible assets in financial year 2008 was as follows:

Software,

rights and

licences

Licences under

finance leases

Internally

generated assets Pre-payments Total

c’000 c’000 c’000 c’000 c’000

Cost 1 Jan. 2008 ......................... 22,765 0 2,553 687 26,005Additions ....................................... 727 828 360 322 2,237Disposals ...................................... -880 0 0 0 -880Transfers....................................... 0 0 0 0 0As at 31 Dec. 2008 ...................... 22,612 828 2,913 1,009 27,362Amortisation 1 Jan. 2008 ........... -20,952 0 -254 0 -21,206Additions ....................................... -1,047 -173 -366 0 -1,586Disposals ...................................... 747 0 0 0 747Transfers....................................... 0 0 0 0 0As at 31 Dec. 2008 ...................... -21,252 -173 -620 0 -22,045Impairment 1 Jan. 2008 .............. 0 0 0 0 0Additions ....................................... -52 0 -198 0 -250Disposals ...................................... 0 0 0 0 0Reversals ...................................... 0 0 0 0 0As at 31 Dec. 2008 ...................... -52 0 -198 0 -250

Net book value 1 Jan. 2008........ 1,813 0 2,299 687 4,799

Net book value 31 Dec. 2008 ..... 1,308 655 2,095 1,009 5,067

The finance lease agreements consist of a licence for the ‘‘VIVENTY by Bernd Berger’’ trademark.The lease agreement provides for components of rent that are dependent on the level of sales.The lease has a term of 4 years with a subsequent obligation to buy.

Contingent rental expenses of c0 thousand (prior year c79 thousand) were recognised in theincome statement in respect of the licences acquired by means of a finance lease.

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Impairment losses of c448 thousand (prior year c0 thousand) in respect of assets from financeleases and of c1,439 thousand in respect of internally generated assets were identified in financialyear 2009. In addition, impairment losses of c52 thousand for licences and c198 thousand forinternally generated software were recognised in the prior year. For further information, please referto Note 6. Depreciation, amortisation and impairment.

11. Property, plant and equipment

Property, plant and equipment include leased land and buildings attributable to the Group aseconomic owner as a result of the structure of the underlying lease agreements. In order to ensurethat these lease agreements, capitalised as finance leases, are measured at the appropriateamount, they were reviewed with the aim of identifying any impairment write-downs that might benecessary. The reviews of the individual stores did not result in the identification of any potentiallosses required to be recognised.

The remaining items of property, plant and equipment consist mainly of the fixtures and fittings ofthe stores.


Land and land

rights

Buildings (incl.

buildings on

third-party

land)

Buildings

under finance

leases

Technical

equipment and

machinery

Other operating

and office

equipment

Pre-payments /

assets under

construction Total

c’000 c’000 c’000 c’000 c’000 c’000 c’000

Cost 1 Jan. 2009 ............... 873 59,139 131,774 10,804 72,340 0 274,930

Additions............................. 0 953 0 171 1,513 39 2,676

Disposals ............................ 0 -393 -2,489 -8 -4,301 0 -7,191

Reclassification of

investment property....... -645 -4,282 0 0 0 -4,927

As at 31 Dec. 2009............ 228 55,417 129,285 10,967 69,552 39 265,488

Depreciation 1 Jan. 2009 . 0 -38,658 -91,264 -3,847 -52,817 0 -186,586

Additions............................. 0 -3,243 -6,547 -432 -4,305 0 -14,527

Disposals ............................ 0 292 2,470 0 3,180 0 5,942

Reclassification of

investment property....... 0 653 0 0 0 0 653

As at 31 Dec. 2009............ 0 -40,956 -95,341 -4,279 -53,942 0 -194,518

Impairment 1 Jan. 2009.... 0 -112 -547 -4,602 -2,342 0 -7,603

Additions............................. -53 -119 0 0 0 0 -172

Disposals ............................ 0 0 0 0 0 0 0

Reversals............................ 0 0 0 0 565 0 565

As at 31 Dec. 2009 -53 -231 -547 -4,602 -1,777 0 -7,210

Net book value 31 Dec.

2008 .............................. 873 20,369 39,963 2,355 17,181 0 80,741


2009 .............................. 175 14,230 33,397 2,086 13,833 39 63,760

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Land and land

rights

Buildings (incl.

buildings on

third-party

land)

Buildings

under finance

leases

Technical

equipment and

machinery

Other operating

and office

equipment

Pre-payments /

assets under

construction Total

c’000 c’000 c’000 c’000 c’000 c’000 c’000

Cost 1 Jan. 2008 ............... 873 59,513 167,442 10,758 70,555 0 309,141

Additions............................. 0 2,325 0 122 7,975 0 10,422

Disposals ............................ 0 -2,699 -35,668 -76 -6,190 0 -44,633

Reclassification of

investment property....... 0 0 0 0 0 0

As at 31 Dec. 2008............ 873 59,139 131,774 10,804 72,340 0 274,930

Depreciation 1 Jan. 2008 0 -37,213 -101,622 -2,633 -52,738 0 -194,206

Additions............................. 0 -3,525 -8,467 -1,282 -5,519 0 -18,793

Disposals ............................ 0 2,080 18,825 68 5,440 0 26,413

Reclassification of

investment property....... 0 0 0 0 0 0 0

As at 31 Dec. 2008 0 -38,658 -91,264 -3,847 -52,817 0 -186,586

Impairment 1 Jan. 2008 0 0 0 0 0 0 0

Additions............................. 0 -112 -547 -4,602 -2,342 0 -7,603

Disposals ............................ 0 0 0 0 0 0 0

Reversals............................ 0 0 0 0 0 0 0

As at 31 Dec. 2008 0 -112 -547 -4,602 -2,342 0 -7,603

Net book value 1 Jan.

2008 873 22,299 65,820 8,125 17,817 0 114,934


2008 873 20,369 39,963 2,355 17,181 0 80,741

For information relating to the impairment losses and reversals recognised, please refer to Note 6.Depreciation, amortisation and impairment.

The finance and operating lease agreements relate principally to leased buildings for stores. Thelease agreements generally include renewal clauses as well as price adjustment clauses based onchanges in the rental price index. In addition, variable components of rent are contingentdepending on the sales achieved in the individual stores. In financial year 2009, the contingentrental payments under finance lease agreements amounted to c812 thousand (prior year c803thousand), while those under operating lease agreements were c3,433 thousand (prior year c2,592thousand).

Impairment losses of c0 thousand (prior year c547 thousand) were identified in financial year 2009in respect of assets from finance leases. For further information, please refer to Note 6.Depreciation, amortisation and impairment.

The terms of the leases generally amount to between 5 and 20 years with renewal options. Therenewal options must be exercised by the Company, depending on the particular lease agreement,at a specified time prior to expiry of the lease agreement. This period ranges between three andtwelve months prior to expiry of the lease agreement. The renewal terms amount to between oneyear and five years.

The expenses for operating leases during the financial year amounted to c50,350 thousand (prioryear c52,744 thousand). The operating lease agreements contain similar renewal options.

The obligations from operating leases are due in subsequent periods as follows:

2009 2008

c’000 c’000

Operating leasesFuture minimum lease payments


221,921 240,587

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Property, plant and equipment amounting to c639 thousand (prior year c5,914 thousand) serves ascollateral for financial liabilities.

12. Investment property

The investment property reported in the financial statements consists of land and a building heldby the special purpose entity ALASKA GmbH & Co. KG included in the consolidation, that wasreclassified out of property, plant and equipment during financial year 2009. The building is nolonger used in its entirety by the Adler Group and is intended for the most part to be let. Theportion which is now available to be let was reclassified as investment property. It is carried at fairvalue. The fair value as at 31 December 2009 was determined by an expert valuer. At the date ofthe reclassification in 2009, this resulted in the recognition of an impairment charge amounting toc900 thousand. It was not possible to generate any rental income in financial year 2009, as thebuilding only became available to be let towards the end of the financial year.

2009 2008

c’000 c’000

Cost 1 Jan. ................................................................................................... 0 0Reclassification from property, plant and equipment..................................... 4,274 0Impairment..................................................................................................... -900 0

As at 31 Dec. ................................................................................................ 3,374 0

The full amount of investment property serves as collateral for financial liabilities as at 31 December2009 (prior year c0 thousand).

Expenses for maintenance and repairs amounting to c17 thousand (prior year c32 thousand) wereincurred during the financial year.

13. Loans to related parties

The other loans amounting to c213 thousand as at 1 January 2008 related to an undated loan toMETRO Group Asset Management Service GmbH (affiliated company) with a fixed rate of interestof 5%, that was paid back in full in 2008.

14. Other receivables and other assets

31 Dec.2009

31 Dec.2008

1 Jan.2008

c’000 c’000 c’000

Non-current receivables and other assetsPayments into a money market fund to cover partial

retirement commitments (held in trust) ....................... 414 776 912Security deposits and sureties........................................ 158 90 235Prepaid expenses ........................................................... 135 161 186

707 1,027 1,333

Current receivables and other assetsReceivables from related partiesAdler Treasury GmbH (affiliated company) .................... 36,407 0 0AMODA GmbH (parent company) .................................. 0 5,051 0METRO AG (parent company) ....................................... 0 0 15,000

36,407 5,051 15,000Tax receivables............................................................... 2,156 1,829 5,081Prepaid expenses ........................................................... 638 707 841Credit card receivables ................................................... 784 1,223 3,038Other............................................................................... 1,147 810 1,018

41,132 9,620 24,978

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Other receivables and other assets include financial assets amounting to c37,763 thousand(31 Dec. 2008: c7,140 thousand; 1 Jan. 2008: c19,185 thousand).

The tax receivables consist entirely of income tax receivable by foreign companies. They are theresult of overpayments of tax for the current and previous financial years.

The prepaid expenses relate to advance payments of rent, building cost subsidies andmaintenance contracts.

The receivables from AMODA GmbH as at 31 December 2008 include an amount of c2,780thousand representing losses for the financial year assumed under the profit and loss transferagreement with Adler Modemarkte GmbH.

15. Deferred tax assets


The deferred tax liabilities and deferred tax assets relate to the following items:

31 Dec.2009

31 Dec.2008

1 Jan.2008

c’000 c’000 c’000

Deferred tax assetsIntangible assets ............................................................. 249 415 596Property, plant and equipment........................................ 22 21 66Investment property ........................................................ 880 0 0Inventories ...................................................................... 0 161 27Receivables and other current assets ............................ 511 462 391Provisions ....................................................................... 118 149 350Liabilities ......................................................................... 4,343 4,546 10,863Tax loss carryforwards.................................................... 19 37 65

Total deferred tax assets ............................................. 6,142 5,791 12,358

of which current .............................................................. 5,431 5,074 11,590of which non-current ....................................................... 711 717 768Deferred tax liabilitiesIntangible assets ............................................................. 0 30 118Property, plant and equipment........................................ 2,889 3,252 7,907Investment property ........................................................ 727 0 0Inventories ...................................................................... 0 0 26Provisions ....................................................................... 595 514 380Liabilities ......................................................................... 1 2 38

Total deferred tax liabilities ......................................... 4,212 3,798 8,469

of which current .............................................................. 4,210 3,793 8,469of which non-current ....................................................... 2 5 0

Netting of deferred tax assets and liabilities ................... -3,899 -3,735 -8,210

Balance sheet amount of deferred tax assets ........... 2,243 2,056 4,148Balance sheet amount of deferred tax liabilities ....... 313 63 259

The changes in deferred taxes compared with the prior year were recorded in the incomestatement.

The loss carryforwards for corporation tax and trade tax purposes shown here relate entirely toGerman companies. No deferred tax assets were recognised in respect of portions of existingforeign loss carryforwards for corporation tax purposes amounting to c7,690 thousand (31 Dec.2008: c6,077 thousand; 1 Jan. 2008: c0 thousand).

The calculation of deferred taxes resulted in a surplus of deferred tax assets. Where there wasdoubt about the recoverability of the deferred tax assets due to insufficient projected earnings in

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the local tax budgets, the deferred tax assets in such cases were recognised only up to theamount of the deferred tax liabilities.

No deferred tax liabilities were recognised in respect of temporary differences in connection withinvestments in subsidiaries amounting to c1,706 thousand (31 Dec. 2008: c3,082 thousand; 1 Jan.2008: c1,769 thousand).

Please refer also to the information under accounting policies and the details provided in Note 8.

16. Inventories

31 Dec.2009

31 Dec.2008

1 Jan.2008

c’000 c’000 c’000

Germany ......................................................................... 46,394 55,334 58,929International .................................................................... 7,206 7,205 7,338

53,600 62,539 66,267

Inventories are measured respectively at the lower of cost and the net realisable selling price onthe balance sheet date less costs still to be incurred. Impairment charges of c1,322 thousand (prioryear c1,592 thousand) in respect of inventories were recorded in the cost of materials in financialyear 2009. The impairment losses were recognised mainly as a result of excessive inventory daysand lack of marketability. There was no recognition of valuation allowances for inventories to alower net selling price less costs still to be incurred.

Inventories as at 31 December 2009 and 31 December 2008 consisted solely of merchandise. Rawmaterials, consumables and supplies amounting to c1,016 thousand and finished products ofc1,097 thousand were also included in inventories as at 1 January 2008.

17. Trade receivables

All trade receivables have a remaining maturity of up to one year. Valuation allowances in respectof trade receivables were not necessary. None of the trade receivables are overdue. All of thereceivables are denominated in euros.

Receivables amounting in total to c3,389 thousand (1 Jan. 2008 c4,854 thousand) due fromsubsidiaries of METRO AG (affiliated companies) were reported as at 31 December 2008.

The Adler Group did not receive any collateral or other credit enhancements as security for tradereceivables in financial years 2009 and 2008, nor as security for outstanding invoices.

For those receivables that were neither impaired nor overdue, there were no indications at thebalance sheet date that the associated payments will not be made when they fall due.

18. Cash and cash equivalents

Cash and cash equivalents were made up as follows:31 Dec.

200931 Dec.

20081 Jan.2008

c’000 c’000 c’000

Balances with banks ....................................................... 33,579 21,398 21,234Cash-in-hand .................................................................. 3,412 3,819 4,263

36,991 25,217 25,497

None of the cash was subject to restrictions on disposal at the balance sheet dates.

19. Equity

Subscribed capital

The subscribed capital of Adler Modemarkte GmbH, Haibach, was unchanged at c15,860 thousandin the period under review. The equity interests of the shareholders are fully paid-up.

F-99


Capital reserves

The Company’s capital reserves amounted to c138,157 thousand at the balance sheet date. Thecapital reserves rose by c53,100 thousand in financial year 2009 from c85,057 thousand. Theincrease was made up of two contributions to capital reserves amounting to c25,600 thousand andc13,000 thousand, together with an income subsidy amounting to c14,500 thousand granted by theshareholder, which is not reported as income under the requirements of IFRS but is added directlyto capital reserves.

In financial year 2008, the capital reserves rose by c51,589 thousand from c33,468 thousand. Theincrease was attributable to income subsidies granted by the shareholder amounting to c48,809thousand. In accordance with the requirements of IFRS, the amount was not recorded as incomebut added directly to capital reserves. In addition, the assumption by AMODA GmbH of lossesgenerated by Adler Modemarkte Deutschland GmbH amounting to c2,780 thousand was alsoreported in capital reserves.

Net accumulated losses

For details relating to the changes in net retained profits/net accumulated losses, please refer tothe information presented in the consolidated statement of changes in equity.

Non-controlling interests

There were no non-controlling interests in the consolidated net loss for the year. The consolidatednet loss for the year is attributable in its entirety to the owners of Adler Modemarkte GmbH.

Dividend restrictions

The articles of association of Adler Modemarkte GmbH contain no provisions for dividendrestrictions over and above the statutory minimum.

Capital management

The Adler Group’s objectives with respect to capital management are firstly to ensure that thebusiness is able to continue operations on a long-term basis and to generate adequate returns forthe shareholders, and secondly to maintain an optimal capital structure in order to reduce the costof capital.

The capital structure is managed in such a way as to take account of changes in the generaleconomic environment and the risks attaching to the underlying assets. As a result of its healthyoperating cash flow, the Company is in a position to deploy its own financial resources in the bestpossible way. For example, investments are regularly reviewed to see whether the Company’s ownavailable financial resources can be replaced by external (lease) financing in order to takeadvantage of improved purchasing prices for goods (e.g. discounts) or to exploit advantageousopportunities for sales arising at short notice. The Adler Group is normally in constant contact withbanks for the purpose of considering the use of bank loans to optimise the return on equity.

In this context, the raising of new debt is managed on the basis of a target debt structure. Thechoice of financial instruments is mainly influenced by the objective of matching the maturities ofassets and liabilities which is achieved by managing the maturities of the instruments issued.

Capital is monitored on the basis of the indebtedness ratio, calculated as the relationship of netdebt to total equity.

31 Dec.2009

31 Dec.2008

1 Jan.2008

c’000 c’000 c’000

Equity.............................................................................. 69,274 25,546 33,202Debt ................................................................................ 135,695 164,378 214,249

Indebtedness ratio........................................................ 1.96 6.43 6.45

20. Provisions for pensions and other employee benefits

The provisions for pensions comprise firstly capital commitments to employees who began theiremployment with Adler Modemarkte GmbH prior to 1980 and also individual commitments to the

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founders of the firm and certain former members of management. The amount of the provisionrecognised in the balance sheet is made up as follows:

31 Dec.2009

31 Dec.2008

1 Jan.2008

c’000 c’000 c’000

Provisions for pensions (direct commitments) ................ 3,048 3,119 3,212Provisions for severance payments ................................ 275 428 639

Provisions for company pension schemes................ 3,323 3,547 3,851

The development of the pension obligations representing the present value of commitments grantedunder defined benefit plans in the Adler Group companies was as follows:

31 Dec.2009

31 Dec.2008

c’000 c’000

As at 1 Jan. 4,826 5,016Current service cost....................................................................................... 110 132Interest cost ................................................................................................... 268 265Pensions paid ................................................................................................ -555 -691Actuarial losses ............................................................................................. 172 104

As at 31 Dec. ................................................................................................ 4,821 4,826

The associated plan assets developed as follows:

31 Dec.2009

31 Dec.2008

c’000 c’000

As at 1 Jan. 1,397 1,364Contributions (employer)................................................................................ 188 222Expected interest income .............................................................................. 64 61Pension payments (severance payments)..................................................... -223 -289Actuarial gains for the year............................................................................ 64 39

Fair value of plan assets as at 31 Dec. ..................................................... 1,490 1,397

The plan assets consist of a direct insurance policy taken out to cover the obligations arising fromseverance payments. In accordance with IAS 19, the resulting claim against the insurancecompany is offset as plan assets against the provision for severance payments required to berecognised. Since 2008 the premiums have been paid in the respective calendar year.

The expected return on plan assets is determined on a uniform basis, taking into account long-term historical yields, the allocation of assets and estimates of the long-term yield on investmentsin the future. The actual return on plan assets in the financial year amounted to c128 thousand(prior year: c100 thousand).

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The reconciliation of the obligations with the amount of the provision is as follows:

31 Dec.2009

31 Dec.2008

1 Jan.2008

c’000 c’000 c’000

Unfunded defined benefit obligation ............................... 3,300 3,344 3,420Wholly or partly funded defined benefit obligation .......... 1,521 1,482 1,596

Subtotal........................................................................... 4,821 4,826 5,016less fair value of plan assets .......................................... -1,490 -1,397 -1,364

Funded status 31 Dec. 3,331 3,429 3,652Actuarial gains (+)/losses (-) not yet recognised ............ -8 118 199

Provision for company pension schemes as at31 Dec........................................................................ 3,323 3,547 3,851

The experience adjustments to the amounts recognised in the balance sheet were as follows:

2009 2008

c’000 c’000

Experience adjustments to liabilities .............................................................. 40 125Experience adjustments to plan assets ......................................................... -63 -39

The amounts recognised in the income statement in the period under review were made up asfollows:

2009 2008

c’000 c’000

Interest cost of defined benefit obligation ...................................................... 268 265Expected interest income from plan assets................................................... -64 -61Service cost ................................................................................................... 110 132Realised actuarial losses ............................................................................... -17 -16

297 320

The expected funding for post-employment benefits plans for the financial year ending 31 December2010 amounts to c188 thousand.

The current employers’ contributions to the statutory pension scheme are included as an expensein the operating profit or loss for the relevant year and amounted to c7,639 thousand (prior yearc9,911 thousand) for the Group as a whole in the financial year.

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21. Other provisions (non-current and current)

Restruc-turing /termin-ation

payments

Rent andincidental

rentalexpenses

Litigationrisks

Otherprovisions

forpersonnelexpenses

Otherprovisions Total

c’000 c’000 c’000 c’000 c’000 c’000

As at 1 Jan. 2008................. 510 1,374 3,000 1,865 319 7,068Utilisations ............................. 0 -446 -942 -833 -157 -2,378Additions................................ 13,366 996 0 478 839 15,679Reversals .............................. -113 -382 -2,058 -419 -26 -2,998Interest accrual...................... 0 0 0 63 0 63

As at 31 Dec. 2008 .............. 13,763 1,542 0 1,154 975 17,434

Non-current ........................... 0 0 0 631 428 1,059Current .................................. 13,763 1,542 0 523 547 16,375

As at 31 Dec. 2008 .............. 13,763 1,542 0 1,154 975 17,434

Utilisations ............................. -10,282 -578 0 -685 -467 -12,012Additions................................ 1,843 1,494 0 553 167 4,057Reversals .............................. -3,481 -398 0 0 -146 -4,025Interest accrual...................... 0 0 0 111 0 111

As at 31 Dec. 2009 .............. 1,843 2,060 0 1,133 529 5,565

Non-current ........................... 0 0 0 632 272 904Current .................................. 1,843 2,060 0 501 257 4,661

As at 31 Dec. 2009 .............. 1,843 2,060 0 1,133 529 5,565

The obligations from restructuring activities comprise expenses associated with the closing ofstores in 2008 and 2009 in addition to provisions for termination costs.

The provision for rent and incidental rental expenses relates to additional rent payable due to rentindexation provisions and possible additional payments arising from operating income andexpenses statements.

The provision for litigation risks mostly relates to legal disputes with the former lessor of theoperating location in Großostheim. In financial year 2008, the Company was able to reachagreement with the respective parties and most of the provision was reversed to profit or loss.

The other provisions for personnel expenses relate to partial retirement commitments andprovisions for anniversaries and death benefits, based on actuarial assumptions and discounted toreflect the expected maturities.

Other provisions include, among other items, provisions for the costs of retaining documents andprovisions for onerous contracts with a non-current portion amounting to c272 thousand (31 Dec.2008: c428 thousand; 1 Jan. 2008: c155 thousand).

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22. Financial liabilities

31 Dec.2009

31 Dec.2008

1 Jan.2008

c’000 c’000 c’000

Liabilities to METRO Finance B.V.......... 5 1 year 46 75 259Liabilities to METRO Finance B.V.......... 4 1 year 4,802 4,995 4,995

4,848 5,070 5,254

Liabilities to banks .................................. 5 1 year 0 0 5,001

0 0 5,001Liabilities from Adler silver card ............. 5 1 year 13,526 15,765 17,614

13,526 15,765 17,614

18,374 20,835 27,869

The liability to METRO Finance B.V. (affiliated company) comprises a loan at a current fixed rateof interest of 3.26% p.a. (interest rate fixed from 1 April 2009 to 31 March 2011). The loan paid afixed rate of interest of 5.04% p.a. until 31 March 2009. The loan has a maturity date of 31 July2024 and is repaid in quarterly instalments.

The liability to banks amounting to c5,000 thousand as at 1 January 2008 paid a fixed rate ofinterest of 4.62% p.a. and was repaid in full in financial year 2008.

The liabilities from the Adler customer card represent discount entitlements not yet utilised due tocustomers who have settled their purchases using the Adler customer card. The customers canoffset the discount entitlement obtained from making a purchase against a subsequent purchase orcan have the amount paid in cash. The amount not yet utilised at the balance sheet date isreported in full as a financial liability in accordance with the requirements of IAS 39. Since theentitlements expire at the latest on 31 December of the following year, the item is included incurrent financial liabilities. The amounts credited to customers do not bear interest.

Based on the normal payment agreements with banks and other business partners, the maturitiesof the current financial liabilities and therefore the associated cash outflows are as follows:

31 Dec.2009

31 Dec.2008

1 Jan.2008

c’000 c’000 c’000

Carrying amount ........................................................... 13,813 16,091 23,134of which due in the following time bands:5 30 days ...................................................................... 13,526 15,765 17,61430 – 90 days................................................................... 107 138 11690 – 180 days ................................................................. 61 63 116180 days – 1 year........................................................... 120 125 5,288

The liabilities from the Adler customer card are presented within the ‘‘under 30 days’’ time bandsince the customers are entitled to redeem their credit at any time within twelve months. Inaccordance with IFRS 7 liabilities of this nature that are payable at any time are allocated to theearliest time band.

As at 31 December 2009, the financial liabilities were secured by items of property, plant andequipment with a carrying amount of c639 thousand and by investment property with a carryingamount of c3,374 thousand. As at 31 December 2008, the financial liabilities were secured byproperty, plant and equipment with a carrying amount of c5,194 thousand.

All of the financial liabilities are repayable in euros.

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23. Finance lease obligations

The Group’s property, plant and equipment include assets classified under licences and land andbuildings that are attributable to the Group as economic owner as a result of the structure of theunderlying lease agreements. The Group’s obligations arising from finance lease agreements of thisnature can be seen from the following table:

31 Dec.2009

31 Dec.2008

1 Jan.2008

c’000 c’000 c’000

Finance lease agreementsFuture minimum lease payments

up to 1 year................................................................. 12,912 13,258 16,5491 to 5 years ................................................................. 42,520 47,473 63,608more than 5 years ....................................................... 12,222 20,376 48,439

67,654 81,107 128,596Discounting

up to 1 year................................................................. -3,904 -4,680 -6,6801 to 5 years ................................................................. -8,452 -11,383 -18,433more than 5 years ....................................................... -1,112 -2,244 -6,387

-13,468 -18,307 -31,500Present value

up to 1 year................................................................. 9,008 8,578 9,8691 to 5 years ................................................................. 34,069 36,090 45,175more than 5 years ....................................................... 11,109 18,132 42,052

54,186 62,800 97,096

The finance lease agreements relate primarily to leased buildings for stores, the amount of whichdeclined in financial year 2008 due to the reclassification of a leased building complex (theadministration building and warehouses of MOTEX Mode-Textil-Service Logistik und ManagementGmbH) in the course of the negotiations for a new lease agreement. The decline in the liabilitieswas also attributable to early closures of stores and the associated termination of leases, as wellas to scheduled repayments.

The terms of the leases generally amount to between 5 and 20 years with renewal options. All ofthe liabilities from finance leases are repayable in euros.

24. Trade payables

31 Dec.2009

31 Dec.2008

1 Jan.2008

c’000 c’000 c’000

Liabilities to third parties ................................................. 33,135 20,268 29,177Liabilities to affiliated companies .................................... 0 14,453 13,339

33,135 34,721 42,516

As in previous years, all trade payables are due within one year.

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Based on the normal payment agreements with suppliers and other business partners, thematurities of the current trade payables and therefore the associated cash outflows are as follows:

31 Dec.2009

31 Dec.2008

1 Jan.2008

c’000 c’000 c’000

Carrying amount ........................................................... 33,135 34,721 42,516of which due in the following time bands:4 30 days ...................................................................... 15,109 20,259 31,08530 – 90 days................................................................... 18,026 14,450 11,25490 – 180 days ................................................................. 0 0 0180 days – 1 year........................................................... 0 12 177

All of the trade payables are due in euros, as in previous years.

No collateral has been provided by the Adler Group for the trade payables reported. Goods aredelivered by suppliers subject to the retention of title provisions applying in the specific country.

25. Other current liabilities

31 Dec.2009

31 Dec.2008

1 Jan.2008

c’000 c’000 c’000

Liabilities from VAT......................................................... 5,234 7,499 7,713Liabilities to Amoda GmbH (parent company) ................ 4,216 0 7,538Liabilities for wages and salaries .................................... 3,422 5,351 6,370Liabilities to customers for gift vouchers sold ................. 2,250 2,370 2,525Liabilities for customs duties........................................... 1,020 620 300Liabilities from wages tax ............................................... 949 1,522 1,060Accrued lease payments ................................................ 893 964 0Employers’ liability insurance .......................................... 387 534 582Deferred building cost subsidies ..................................... 351 493 326Social security contributions ........................................... 318 468 436Liabilities from contract terminations .............................. 0 1,500 0Deferred income from customer loyalty programme....... 0 430 0Liabilities to Metro AG (parent company) ....................... 0 0 1,198Miscellaneous ................................................................. 513 2,105 1,655

19,553 23,856 29,703

Other current liabilities include financial liabilities amounting to c6,879 thousand (31 Dec. 2008:c4,430 thousand; 1 Jan. 2008: c11,870 thousand).

The liabilities to AMODA GmbH include liabilities amounting to c2,094 thousand (31 Dec. 2008:c0 thousand; 1 Jan. 2008: c7,538 thousand) in respect of the profit and loss transfer from AdlerModemarkte GmbH for each financial year.

The miscellaneous current liabilities include an amount of c26 thousand in respect of thecompensation entitlement of the limited partners in Alaska GmbH & Co. KG which is limited to thisamount.

26. Income tax liabilities

The income tax liabilities include liabilities relating to corporation tax amounting to c907 thousand(31 Dec. 2008: c845 thousand; 1 Jan. 2008: c2,861 thousand) and liabilities relating to trade taxamounting to c339 thousand (31 Dec. 2008: c277 thousand; 1 Jan. 2008: c1,224 thousand). As at1 January 2008 there were also provisions of c1,778 thousand for risks arising from a companytax audit for the period before the grouping of companies for tax purposes, and other income taxliabilities amounting to c24 thousand. Thanks to an agreement with the tax authorities, theCompany was able to reverse the majority of these amounts to profit or loss in 2008.

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27. Statement of cash flows

The statement of cash flows shows the development of the Adler Group’s cash and cashequivalents in the year under review and the prior year. Cash and cash equivalents are defined forthis purpose as holdings of cash and cash equivalents less cash subject to restrictions on disposal.

In accordance with IAS 7, the cash flows are classified as cash from/used in operating activities,investing activities and financing activities.

2009 2008

c’000 c’000

Cash from (+)/ used in (-) operating activities (net cash flow) ...................... 7,192 -22,523Cash from (+)/ used in (-) investing activities ................................................ -37,842 4,033Free cash flow ............................................................................................. -30,650 -18,490Cash from (+)/ used in (-) financing activities................................................ 42,424 18,210Net increase (+)/ decrease (-) in cash and cash equivalents .................. 11,774 -280

The statement of cash flows was prepared according to the indirect method. Impairment losses arepresented on a separate line within operating cash flow.

Cash and cash equivalents as at 31 December 2009 amount to c36,991 thousand (31 Dec. 2008:c25,217 thousand; 1 Jan. 2008: c25,497 thousand) and include demand deposits with banks,cheques and cash-in-hand. There was no cash subject to restrictions on disposal during thereporting period.

Other non-cash income and expenses amounting to c14,230 thousand (prior year: c20,962thousand) include valuation allowances in respect of inventories, additions to other provisions andadditions to current financial liabilities from the Adler customer card.

The following non-cash transactions took place in financial year 2008:

The ‘‘VIVENTY by Bernd Berger’’ trademark was acquired partly by means of a finance lease. Theaddition amounting to c828 thousand had no effect on cash.

Liabilities to the shareholder amounting to c8,809 thousand were converted into equity with noeffect on cash.

28. Risk management and the use of derivative financial instruments

The finance department of Adler Modemarkte GmbH monitors and manages the financial risks ofthe entire Adler Group. Specifically, those risks are

* liquidity risks

* market risks (interest rate and currency risks)

* credit risks

The Adler Group is exposed to a large number of financial risks as a result of its businessactivities. We understand risk to mean unexpected events and possible developments that have anegative effect on achieving the objectives we have set ourselves and our expectations. The risksthat are relevant are those with a material effect on the net assets, financial position and results ofoperations of the Company. The Group’s risk management system analyses a range of risks andattempts to minimise negative effects on the financial position of the Company. The riskmanagement activities are carried out in the finance department on the basis of establishedguidelines.

For the purpose of measuring and managing material individual risks, the Group distinguishesbetween liquidity, credit and market risks.

Liquidity risks

We understand liquidity risk in the narrow sense to mean the risk of being able to meet present orfuture payment obligations either not at all or only on unfavourable terms. The Company mainlygenerates financial resources through its operating activities.

Adler Modemarkte GmbH functions as the financial coordinator for the companies in the AdlerGroup in order to ensure that the financial requirements for the operating business and forinvestments are covered on the most favourable terms possible in terms of cost and in amounts

F-107


that are always sufficient. The necessary information is provided via a Group financial planningprocess with additional 14-day liquidity projections on a rolling weekly basis, and is analysedconstantly.

The long-term corporate financing requirements of the Adler Group are secured by the ongoingcash flows from operating activities and from leases entered into on a long-term basis.

The intra-Group cash management system enables short-term liquidity surpluses in individualGroup companies to be used as internal financing to meet the cash requirements of other Groupcompanies. This contributes to a reduction in the volume of external debt financing and to the bestpossible use of cash deposits and capital investments, and therefore has a positive effect on thenet interest income and expenses of the Group.

At Group level, a consolidated and integrated liquidity plan is prepared using the latest businessplanning and financial projections together with additional special items that are identified at shortnotice.

The Adler Group is mainly financed by its own liquid resources generated from its operatingactivities. It has only one loan outstanding, to a company within the METRO AG group, which wasused for a property financing transaction. The outstanding balance of the loan as at the balancesheet date amounted to c4,848 thousand (31 Dec. 2008: c5,070 thousand; 1 Jan. 2008: c10,254thousand). The balance as at 1 January 2008 includes a further loan for c5,000 thousand.However, this loan was replaced by the loan from the METRO AG group company. Current loanliabilities at the balance sheet date amounted to c46 thousand (31 Dec. 2008: c75 thousand; 1 Jan.2008: c5,260 thousand). The remaining current financial liabilities at the balance sheet dateamounted to c13,526 thousand (31 Dec. 2008: c15,765 thousand; 1 Jan. 2008: c17,614 thousand).

In 2008 an income subsidy amounting to c40,000 thousand granted by the shareholder at that timewas contributed to capital reserves. The shareholder granted two further income subsidiesamounting to c8,809 thousand in the form of the waiver of a receivable.

In financial year 2009 the new shareholder also granted an income subsidy amounting to c14,500thousand. In addition, a further c38,600 thousand was contributed to capital reserves by the formershareholder at the beginning of the financial year.

Maturity analysis of financial liabilities

The table below shows the maturity structure of the contractual undiscounted cash flows fromfinancial liabilities:

31 Dec. 2009up to1 year

over1 year

c’000 c’000


31 Dec. 2008up to1 year

over1 year

c’000 c’000


1 Jan. 2008up to1 year

over1 year

c’000 c’000


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The undiscounted cash outflows are subject to the condition that the liabilities are repaid on theearliest due date.

A detailed analysis of the maturity band ‘‘up to 1 year’’ is provided in Note 24 ‘‘Trade payables’’ forthe trade payables and in Note 22 ‘‘Financial liabilities’’ for the financial liabilities.

The maturities of the finance lease obligations ‘‘up to 1 year’’ and therefore the associated cashoutflows are as follows:

31 Dec.2009

31 Dec.2008

1 Jan.2008

c’000 c’000 c’000

Total due within one year ............................................ 12,912 13,258 16,549of which due in the following time bands:5 30 days ...................................................................... 864 888 1,16430 – 90 days................................................................... 2,380 2,427 2,92490 – 180 days ................................................................. 3,223 3,315 4,088180 days – 1 year........................................................... 6,445 6,628 8,373

The maturities of the other current liabilities ‘‘up to 1 year’’ and therefore the associated cashoutflows are as follows:

31 Dec.2009

31 Dec.2008

1 Jan.2008

c’000 c’000 c’000

Total due within one year ............................................ 6,879 4,430 11,870of which due in the following time bands:5 30 days ...................................................................... 2,276 2,396 2,55130 – 90 days................................................................... 2,094 0 090 – 180 days ................................................................. 387 2,034 582180 days – 1 year........................................................... 2,122 0 8,737

Credit risks

Credit risks arise from the complete or partial default of a counterparty, for example throughinsolvency, and in connection with deposits. The maximum risk of default is equal to the carryingamounts of all the financial assets. Valuation allowances are recognised in respect of tradereceivables and other receivables and assets in accordance with rules applied consistently acrossthe Group and cover all identifiable credit risks.

As part of the risk management system, minimum requirements for the credit rating and alsospecific upper limits for the exposure are laid down for all business partners of the Adler Group.The level of the upper credit limit reflects the creditworthiness of a contractual counterparty and thetypical size of the volume of transactions with that party. This is based on a systematic procedurefor approving limits set down in the Treasury guidelines, which relies firstly on the classificationsawarded by international ratings agencies and on internal credit assessments, and secondly onhistorical values experienced by the Group with the respective contractual parties. The Adler Grouptherefore has a very low exposure to credit risks.

The loans and receivables reported in the consolidated financial statements amounting to c38,365thousand (31 Dec. 2008: c10,797 thousand; 1 Jan. 2008: c24,680 thousand) are not secured. Themaximum risk of default is therefore equal to the carrying amount of the loans and receivablesreported.

Valuation allowances in appropriate amounts are generally recognised in order to take account ofidentifiable risks of default in respect of receivables.

None of the loans and receivables reported at the balance sheet date were impaired or overdue.

Market risks (interest rate and currency risks)

We understand market risk to mean the risk of loss that can arise due to a change in marketparameters used for measurement (currency, interest rates, price).

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Interest rate and currency risks are significantly reduced and limited by the principles laid down inthe internal Treasury guidelines. These establish mandatory rules applied uniformly across theGroup that all hedging transactions must be subject to predetermined limits and must never resultin an increase in the risk position. At the same time, the Adler Group is fully aware that theopportunities for increasing earnings by taking advantage of current or expected changes in interestrates or exchange rates are very limited.

The Adler Group is not exposed to currency risks since 100% of the consolidated revenue isgenerated in euros and all purchases of goods are also made in euros. All receivables, loans andfinancial liabilities are denominated in euros.

Interest rate risks are liable to arise mainly as a result of movements in market rates of interestwhich result in changes in expected cash flows. In order to minimise the risk of changes in interestrates within the Adler Group, where necessary, loans are taken out only on a long-term basis andleases are entered into at fixed rates of interest. With the exception of the liability to METROFinance B.V. (see Note 22), the Adler Group is not a party to any financial instruments bearing avariable rate of interest. If the level of interest rates had been 100 basis points higher at the datewhen the new rate of interest was determined for this liability, the interest expense for 2009 wouldhave been c5 thousand higher. If the level of interest rates had been 100 basis points lower at thedate when the new rate of interest was determined for this liability, the interest expense for 2009would have been c5 thousand lower. Since the interest rate was fixed for the whole of 2008, therewas no sensitivity to interest rates in that period.

The Adler Group is not exposed to any other material risks affecting the prices of financialinstruments. At the balance sheet date, the Group held no shares in quoted companies.

Carrying amounts and fair values of financial instruments

The table below shows the carrying amounts and fair values of the financial assets and liabilitiesfor each measurement category in accordance with IAS 39. The fair value of a financial instrumentis the amount for which an asset could be exchanged or a liability settled between knowledgeable,willing parties in an arm’ s length transaction.

31 Dec. 2009

At amortised cost At fair value Total amount

Other

liabilities

Loans

and

receivables

Derivatives

held for

trading

Carrying amount

under IAS 17

Balance sheet item

Carrying

amount

Carrying

amount

Carrying

amount

Carrying

amount

Carrying

amount

Fair

Value

c’000 c’000 c’000 c’000 c’000 c’000

Loans ........................................................ — 0 — — 0 0


Trade receivables...................................... — 602 — — 602 602



Trade payables ......................................... 33,135 — — — 33,135 33,135





F-110


31 Dec. 2008


Other

liabilities

Loans

and

receivables

Derivatives

held for

trading

Carrying amount

under IAS 17

Balance sheet item

Carrying

amount

Carrying

amount

Carrying

amount

Carrying

amount

Carrying

amount

Fair

Value

c’000 c’000 c’000 c’000 c’000 c’000

Loans ........................................................ — 0 — — 0 0





Trade payables ......................................... 34,721 — — — 34,721 34,721





1 Jan. 2008


Other

liabilities

Loans

and

receivables

Derivatives

held for

trading

Carrying amount

under IAS 17

Balance sheet item

Carrying

amount

Carrying

amount

Carrying

amount

Carrying

amount

Carrying

amount

Fair

Value

c’000 c’000 c’000 c’000 c’000 c’000

Loans ........................................................ — 213 — — 213 213





Trade payables ......................................... 42,516 — — — 42,516 42,516





The fair values of the financial instruments are determined on the basis of the market informationavailable at the balance sheet date using the methods and assumptions described below.

In view of the short maturities of trade receivables and cash, it is assumed that the fair values areapproximately equal to the carrying amounts.

In principle, the liabilities included in the balance sheet under trade payables generally have shortremaining maturities, so that the fair values are approximately equal to the carrying amountsreported, in line with the assumption made.

As at 1 January 2008, loans reported in the balance sheet consisted solely of one item. This wasa loan that was repaid in 2008. Given the short maturity of the loan, the fair value wasapproximately equal to the carrying amount reported, in line with the assumption made.

Other financial assets, financial liabilities, liabilities from finance leases and other financial liabilitiesreported in the balance sheet comprise current and non-current financial assets and liabilities. Thefair values of assets and liabilities with remaining maturities of more than 1 year are calculated bydiscounting the cash flows associated with those assets and liabilities using current interest rateparameters. For this purpose, the individual credit ratings used by the Group are reflected in the

F-111


form of normal market credit and liquidity spreads for the purpose of determining the presentvalues.

Net gains and losses from financial instruments by measurement category

The table below shows the net gains and losses from financial instruments reported in the incomestatement by measurement category. Interest income and expenses were the only relevant itemsfor the determination of the net gains and losses.



c’000 c’000 c’000

from Interest ................................................................... 1,703 -205 1,498

Total ............................................................................... 1,703 -205 1,498



c’000 c’000 c’000

from interest.................................................................... 335 -674 -339

Total ............................................................................... 335 -674 -339

No interest income was received from impaired trade receivables during the period under review.

Other disclosures

At the balance sheet date there were no financial assets or financial liabilities designated as at fairvalue through profit or loss. The Group had no holdings of derivative financial instruments.

VI. Other notes

29. Other financial obligations

As at the balance sheet date 31 December 2009, there were other financial obligations arising fromrental, lease and service agreements entered into by the Group in the ordinary course of businessthat cannot be terminated prior to maturity. The analysis of the total future payments arising fromthose agreements by maturities is as follows:

2009 up to1 year 1-5 years

over5 years Total


Total ................................................................... 58,307 111,236 76,321 245,864


over5 years Total


Total ................................................................... 58,127 111,270 92,515 261,912

The total rental and lease obligations amounting to c221,921 thousand (prior year c240,587thousand) relate to rental and lease agreements for land and buildings in an amount of c218,719

F-112


thousand (prior year c238,678 thousand) and to operating lease agreements for other facilities andoperating and office equipment in an amount of c3,202 thousand (prior year c1,909 thousand).

The other financial obligations include c286 thousand (prior year c298 thousand) in respect ofmaintenance and service agreements for machinery and equipment, software and other operatingand office equipment.

In addition, there were capital expenditure commitments of c23,657 thousand (prior year c21,027thousand) at the balance sheet date 31 December 2009.

The total future minimum lease payments arising from subleases amounted to c6,738 thousand(prior year: c9,735 thousand) at 31 December 2009.


over5 years Total

c’000 c’000 c’000 c’000


Total ................................................................... 1,039 5,699 0 6,738


over5 years Total

c’000 c’000 c’000 c’000


Total ................................................................... 1,061 8,674 0 9,735

30. Contingent liabilities

The Group has a guarantee facility in an amount of c5,000 thousand with Commerzbank inSaarbrucken. As at 31 December 2009 the guarantee facility was being utilised in an amount ofc586 thousand. The full amount of the facility utilised was secured by a pledge on currentaccounts in favour of Commerzbank in Saarbrucken. A customs guarantee for an amount of c27thousand was also outstanding.

In the previous year there were also rental and customs guarantees amounting to c539 thousandand c2,152 thousand.

31. Executive bodies of the Company

The following persons exercised a management function in financial year 2009 and up to the dateof preparation of the financial statements:

* Wolfgang Krogmann (chairman), Hamburg, managing director for coordination and sales(until 10 March 2009),

* Reinhard Muller, Dusseldorf, commercial managing director (until 6 March 2009),

* Andreas Oerter, Haibach, managing director for buying/marketing (until 10 March 2009),

* Lothar Schafer (spokesman of the managing board), Villmar, managing director for buying(from 11 March 2009),

* Dr. Martin Vorderwulbecke, Munich, managing director without portfolio(from 11 March 2009; resigned as at 31 December 2010),

* Thomas Wanke, Brunswick, managing director for sales, marketing and visual merchandising(from 1 July 2009),

* Jochen Strack, Linden, managing director for administration (from 1 September 2009).

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The managing directors are the key management personnel of the Adler Group in accordance withIAS 24. Management’s compensation in financial year 2009 amounted in total to c958 thousand(prior year: c1,386 thousand). The compensation can be broken down as follows:

2009 2008

c’000 c’000

Fixed payments ............................................................................................. 437 1,094Payments in kind ........................................................................................... 11 25Bonuses......................................................................................................... 0 265Short-term employee benefits .................................................................... 448 1,384

Termination payments ................................................................................... 510 0Termination benefits ................................................................................... 510 0

Pension payments ......................................................................................... 0 2Post-employment benefits .......................................................................... 0 2

958 1,386

The balances outstanding as at 31 December 2009 amounted to c0 thousand (31 Dec. 2008: c265thousand) and were reported under other liabilities.

Family members of key management personnel provide services to the Company.

The members of the supervisory board of Adler Modemarkte GmbH in financial year 2009 were asfollows:

* Zygmunt Mierdorf, Dusseldorf, member of the management board of METRO AG, chairman ofthe supervisory board (until 6 March 2009, 12:30 hours)

* Werner Arndt, Dusseldorf, department head of legal & projects at METRO AG (until 6 March2009, 12:30 hours)

* Dr. Hans-Jorg Gidlewitz, Duisburg, section head of planning & controlling at METRO AG (until6 March 2009, 12:30 hours)

* Georg W. Mehring-Schlegel, Dusseldorf, section head of group strategy at METRO AG (until6 March 2009, 12:30 hours)

* Dr. Stephan Korkemeyer, Dusseldorf, compensation & benefits at METRO AG (until 6 March2009, 12:30 hours)

* Dr. Jurgen Pfister, personnel & social matters at METRO AG (until 6 March 2009, 12:30hours)

* Markus Zollner, Bichl, industrial engineer, chairman of the supervisory board (from 6 March2009, 14:00 hours)

* Oliver Apelt, Dusseldorf, managing director (from 6 March 2009, 14:00 hours)

* Dr. Hans-Michael Deml, Munich, attorney (from 6 March 2009, 14:00 hours)

* Mortimer Glinz, Munich, graduate engineer (from 6 March 2009, 14:00 hours)

* Holger Kowarsch, Hochstadt, businessman (from 6 March 2009, 14:00 hours)

* Frank Muller, Munich, business consultant (from 6 March 2009, 14:00 hours)

* Angelika Zinner, Kettenis/Belgium, chairwoman of the general works council, Adler ModemarktAachen (vice-chairwoman of the supervisory board, employee representative)

* Majed Abu-Zarar, Viernheim, employee at Adler Modemarkt Neu-Edingen (from 1 July 2009,employee representative)

* Ingrid Dusmann-Schulz, Haibach, member of the works council, Adler Modemarkt Haibach(employee representative)

* Corinna Gross, Neuss, secretary of the Essen district of the ver.di united services union(employee representative)

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* Sabine Heckel, Großfriesen, specialist sales adviser, Adler Modemarkt Plauen-Kauschwitz(until 30 June 2009, employee representative)

* Georg Linder, Hosbach, section head of procurement planning, Adler Modemarkt Haibach(employee representative)

* Erika Ritter, secretary of the national executive board of the ver.di union, national retailsection Berlin (employee representative).

The members of the supervisory board are also key management personnel of the Adler Group inaccordance with IAS 24. The total compensation of the members of the supervisory board forattending meetings amounted to c40 thousand (prior year c39 thousand). A member of thesupervisory board is the managing director of a company which charged the Company a total ofc40 thousand (prior year c0 thousand) in financial year 2009 for consultancy services in connectionwith the restructuring programme.

32. Related party disclosures

In March 2009 Adler Modemarkte GmbH was acquired by BluO beta equity Limited, UnitedKingdom. The Company was owned by METRO AG during the reporting period until the date ofsale. Accordingly, a change in the related parties took place in financial year 2009. The relatedparties include the key management personnel of Adler Modemarkte GmbH. The latter are listedby name together with their compensation in Note 31. Executive bodies of the Company.

All companies controlled by METRO AG or its principal owners were regarded as related partiesuntil the sale of the Company to BluO beta equity Limited. The parent companies were AMODAGmbH and METRO AG. Since the transaction, only companies controlled by the new owner BluObeta equity Limited and its shareholders or legal representatives qualify as related parties. Theparent companies are AMODA GmbH (immediate parent company) and BluO beta equity Limited.



Purchases of goods:

2009 2008

c’000 c’000

Affiliated companies....................................................................................... 23,550 89,155

23,550 89,155

Purchases of services:

2009 2008

c’000 c’000

Affiliated companies....................................................................................... 4,513 29,318Parent companies.......................................................................................... 0 5,668

4,513 34,986

Services received from and performed for related parties are normally purchased on the basis ofactual costs plus a profit margin of 5%. Goods are purchased at the same prices that would bereceived by an unrelated third party.

F-115


Sales of services:

2009 2008

c’000 c’000

Affiliated companies....................................................................................... 26 893Parent companies.......................................................................................... 0 143

26 1,036

Family members of key management personnel provided services to the Adler Group in an amountof c18 thousand (prior year c0 thousand). Payment for the services was made on normal marketterms. In addition, items of property, plant and equipment amounting to c245 thousand (prior yearc0 thousand) were sold to companies controlled by family members of key management personnel.The items were sold on normal market terms. A member of the supervisory board is the managingdirector of a company which charged the Company a total of c40 thousand (prior year c0thousand) in financial year 2009 for consultancy services in connection with the restructuringprogramme. The outstanding balances amounted to c26 thousand (prior year c0 thousand).

Financial transactions with related parties:

* Other operating income (see Note 2)

* Trade payables and other liabilities (see Notes 24 and 25)

* Loans (see Note 22, Financial liabilities)

* Subsidies (see Liquidity risks under Note 28, and Note 19, Equity)

* Profit and loss transfer agreement (see Note 19, Equity)

* Loans (see Note 13)

* Other receivables (see Note 14)

* Trade receivables (see Note 17).

The obligations from finance and operating lease agreements with related parties, which mostlycomprise rental agreements for buildings leased from companies within the METRO AG group(affiliated companies), are due as follows in subsequent periods:

up to1 year 1-5 years

over5 years Total

c’000 c’000 c’000 c’000

Finance lease agreementsFuture lease payments ....................................... 2,057 6,965 1,606 10,628Discounting ......................................................... -612 -1,563 -136 -2,311

Present value ...................................................... 1,445 5,402 1,470 8,317Operating lease agreementsFuture lease payments ....................................... 8,452 27,901 18,969 55,322

Details of interest income and interest expenses arising in connection with related parties are givenunder Note 7, Net finance costs.

33. Litigation and claims for damages

The Adler Group is not involved in any legal or arbitration proceedings with a significant effect onthe position of the Group. The existing proceedings have not yet been concluded and/or theamount of the obligation or of the claims cannot be reliably determined as a result of the highdegree of uncertainty.

F-116


34. Auditors’ fees

Fees amounting in total to c195 thousand (prior year c482 thousand) were incurred in financialyear 2009 for services provided by the auditor within the meaning of § 318 German CommercialCode (Handelsgesetzbuch, ‘‘HGB’’):

2009 2008

c’000 c’000

Audit of the financial statements ................................................................... 145 327Other audit work ............................................................................................ 2 47Tax advice ..................................................................................................... 48 38Other services ............................................................................................... 0 70

Total .............................................................................................................. 195 482

35. Events after the balance sheet date

There were no matters arising after the end of the financial year up to the date of preparation ofthe annual financial statements that have a material effect on the net assets, financial position andresults of operations of financial year 2010.


Lothar Schafer Jochen Strack Thomas WankeGeschaftsfuhrer Geschaftsfuhrer Geschaftsfuhrer

F-117


Auditors’ Report

To Adler Modemarkte GmbH, Haibach:

We have audited the consolidated financial statements prepared by the Adler Modemarkte GmbH,Haibach, comprising the statement of financial position, the statement of comprehensive income,statement of changes in equity, cash flow statement and the notes to the consolidated financialstatements, for the business year from January 1 to December 31, 2009. The preparation of theconsolidated financial statements in accordance with the IFRS, as adopted by the EU, is theresponsibility of the Company’s Managing Directors. Our responsibility is to express an opinion onthe consolidated financial statements based on our audit.

We conducted our audit of the consolidated financial statements in accordance with § (Article) 317HGB (‘‘Handelsgesetzbuch’’: ‘‘German Commercial Code’’) and German generally acceptedstandards for the audit of financial statements promulgated by the Institut der Wirtschaftsprufer(Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and performthe audit such that misstatements materially affecting the presentation of the net assets, financialposition and results of operations in the consolidated financial statements in accordance with theapplicable financial reporting framework are detected with reasonable assurance. Knowledge of thebusiness activities and the economic and legal environment of the Group and expectations as topossible misstatements are taken into account in the determination of audit procedures. Theeffectiveness of the accounting-related internal control system and the evidence supporting thedisclosures in the consolidated financial statements are examined primarily on a test basis withinthe framework of the audit. The audit includes assessing the annual financial statements of thecompanies included in consolidation, the determination of the companies to be included inconsolidation, the accounting and consolidation principles used and significant estimates made bythe Company’s Managing Directors, as well as evaluating the overall presentation of theconsolidated financial statements. We believe that our audit provides a reasonable basis for ouropinion.


In our opinion based on the findings of our audit the consolidated financial statements comply withthe IFRS, as adopted by the EU, and give a true and fair view of the net assets, financial positionand results of operations of the Group in accordance with these requirements.





F-118


Audited annual financial statementsof Adler Modemarkte GmbH

as at 31 December 2010 (HGB)

F-119


Income statement for the financial year from1 January 2010 to 31 December 2010

2010 2009

c c c

1. Sales ........................................................................ 390,899,085.93 364,163,928.322. Other operating income ........................................... 12,519,585.88 19,574,529.01

403,418,671.81 383,738,457.333. Cost of materials

Cost of purchased goods ........................................ -204,942,937.89 -201,873,172.55

198,475,733.92 181,865,284.784. Personnel expenses

a) Wages and salaries........................................ -49,923,370.87 -56,833,208.94b) Social security contributions and expenses

for old-age part time....................................... -10,917,390.22(of which for old-age part time c384,151.41;prior year c211 thousand).............................. -9,897,951.79

-59,821,322.665. Amortisation of intangible assets,

depreciation of tangible assets and write-downs .... -5,287,931.92 -6,934,466.096. Other operating expenses ....................................... -118,811,726.06 -121,431,269.55

14,554,753.28 -14,251,050.027. Income from investments in affiliated companies ... 0.00 104,441.77

(of which from affiliated companies c0.00;prior year c104 thousand)

8. Other interest and similar income ........................... 3,586,616.37 1,917,581.67(of which from affiliated companies c3,458,886.97;prior year c1,658 thousand)

9. Interest and similar expenses.................................. -262,710.53 -28,881.04(of which to affiliated companies c8,298.24;prior year c11 thousand)(of which from expenses from periodic interestaccrual c242,637.00;prior year c0 thousand)

10. Income from profit and loss transfer agreements(prior year expenses from losses assumed)(of which from affiliated companies c536.65;prior year c-33 thousand) ........................................ 536.65 -32,654.00

3,324,442.49

11. Profit/loss from operations................................... 17,879,195.77 -12,290,561.6212. Extraordinary income ............................................... 590,023.00 14,500,000.0013. Extraordinary expenses ........................................... -58,043.00 0.00

14. Extraordinary profit ............................................... 531,980.00 14,500,000.00

15. Other taxes .............................................................. -39,085.95 -115,401.82

18,372,089.82 2,094,036.5616. Profit transferred due to profit and loss transfer

agreement ................................................................ -18,372,089.82 -2,094,036.56

17. Net profit for the year ........................................... 0.00 0.00

F-120


Balance sheetas at 31 December 2010

ASSETS

31 Dec. 2010 31 Dec. 2009

e e

A. Fixed assetsI. Intangible assets

Licences and computer software .............................................. 1,955,351.00 2,287,766.00

II. Tangible assets1. Constructions on third-party land ..................................... 6,644,901.00 8,077,533.002. Operating and office equipment....................................... 7,856,653.00 9,843,671.003. Payments on account ...................................................... 66,588.54 39,350.82

14,568,142.54 17,960,554.82

III. Financial assets1. Shares in affiliated companies......................................... 7,101,535.48 405,412.242. Long-term investments..................................................... 380,749.47 380,749.473. Other loans....................................................................... 280,312.98 193,696.25

7,762,597.93 979,857.96

24,286,091.47 21,228,178.78

B. Current assetsI. Inventories

1. Consumables and supplies .............................................. 553,141.19 536,098.572. Merchandise ..................................................................... 45,713,938.87 45,315,626.363. Payments on account ...................................................... 0.00 125,000.00

46,267,080.06 45,976,724.93

II. Receivables and other assets1. Trade receivables............................................................. 33,803.31 9,656.062. Receivables from affiliated companies ............................ 9,560,300.10 47,429,576.563. Other assets..................................................................... 1,719,186.84 1,413,166.18

11,313,290.25 48,852,398.80

III. Cash-on-hand and bank balances ............................................ 26,021,564.17 33,583,992.65

83,601,934.48 128,413,116.38

C. Prepaid expenses.............................................................................. 578,721.86 572,967.00

108,466,747.81 150,214,262.16

F-121


EQUITY AND LIABILITIES

31 Dec. 2010 31 Dec. 2009

c c

A. EquityI. Subscribed capital ..................................................................... 15,860,000.00 15,860,000.00II. Capital reserves......................................................................... 34,412,000.00 72,067,694.13

50,272,000.00 87,927,694.13

B. Provisions1. Provisions for pensions and other employee benefits.......... 2,848,947.00 2,678,193.002. Other provisions ............................................................... 18,419,664.50 16,298,396.71

21,268,611.50 18,976,589.71

C. Liabilities1. Trade payables ................................................................ 24,144,227.70 29,021,127.212. Liabilities to affiliated companies ....................................... 6,413,160.38 6,700,445.16

(of which to the sole shareholder c3,968,069.81; prioryear c4,216 thousand)

3. Other liabilities.................................................................. 6,281,648.23 7,427,705.95(of which from taxes c3,132,939.73; prior year c3,689thousand) of which relating to social securityc1,331.32; prior year c1 thousand)

36,839,036.31 43,149,278.32

D. Deferred income 87,100.00 160,700.00

108,466,747.81 150,214,262.16

F-122


Notes to the annual financial statements as at 31 December 2010

I. General information

The Company prepared its annual financial statements in accordance with the requirementsapplying to large corporations (§ 264 German Commercial Code (Handelsgesetzbuch, ‘‘HGB’’)) inconjunction with § 267 (3) and (4) HGB) and of the German Limited Liability Companies Act(GmbH-Gesetz, ‘‘GmbHG’’).

The income statement was prepared using the classifications in accordance with the nature ofexpense method pursuant to § 275 (2) HGB.

The recognition and measurement requirements of the German Act for the Modernisation ofAccounting Law (Bilanzrechtsmodernisierungsgesetz, ‘‘BilMoG’’), which came into force on 29 May2009, are applicable for the first time to the annual financial statements of the Company forfinancial year 2010 (Article 66 (3) sentence 1 Introductory Act to the German Commercial Code(Einfuhrungsgesetz zum Handelsgesetzbuch, ‘‘EGHGB’’)). The Company did not make use of theoption of applying the requirements early (Article 66 (3) sentence 6 EGHGB).

The application of the provisions of the BilMoG may result in changes in the measurement andreporting of items in the balance sheet for the previous year in the BilMoG opening balance sheetas at 1 January 2010. The prior-year figures have not been restated on first-time application inaccordance with Article 67 (8) sentence 2 EGHGB.

In accordance with the new HGB rules, expenses arising from the periodic interest accrual onprovisions have been reported in the income statement for the first time under interest and similarexpenses.

AMODA GmbH, Haibach, holds 100% of the shares in Adler Modemarkte GmbH, Haibach.

II. Accounting policies and notes to the balance sheet

As a result of the sale of the Company’s subsidiary MOTEX Mode-Textil-Service Logistik undManagement GmbH (MOTEX) as at 30 September 2010, all costs of goods handling invoiced byMOTEX were required to be capitalised from 1 October 2010 as incidental costs of acquisition, andthey were recognised as part of the measurement of inventories.

Provisions for pensions and other employee benefits are measured on the basis of actuarialcalculations in accordance with the projected unit credit method using the 2005 G mortality tablespublished by Dr. Klaus Heubeck. The provisions for pensions and other employee benefits werediscounted at the average market rate of interest for the past seven years published by theBundesbank for an assumed remaining maturity of 15 years (§ 253 (2) sentence 2 HGB). At thebalance sheet date, that rate of interest was 5.15%. For the purposes of the calculation of theprovisions for pensions and other employee benefits, it was assumed that pensions would increaseby 2.0% per annum and that the annual rate of employee turnover would be 1.8%. The revisedaccounting treatment of the pension provisions resulting from the transition to BilMoG as at1 January 2010 (BilMoG opening balance sheet) resulted in additions to the provisions of c599thousand compared with the amount previously recognised as at 31 December 2009. TheCompany is making use of the option granted by Article 67 (1) sentence 1 EGHGB and isspreading the cost of the revised treatment (c599 thousand) over a period of 15 years. An amountof c40 thousand was recognised as an extraordinary expense in financial year 2010. At thereporting date for the financial statements, therefore, the amount of the Company’s pensionliabilities not covered by the pension provisions was c559 thousand.

Provisions for obligations from partial retirement programmes are recognised in accordancewith actuarial principles using both the block model and the part-time working model, and on thebasis of the 2005 G mortality tables published by Dr. Klaus Heubeck. The rate of interestappropriate to the maturity of the obligations is 4.07% per annum. The provisions for partialretirement programmes were recognised in respect of partial retirement agreements alreadyconcluded at the balance sheet date. They include additional step-up payments and the Company’sobligations accrued up to the balance sheet date in respect of hours worked in excess of thosecontractually agreed. The addition to the provisions resulting from the application of the BilMoGamounted to c6 thousand in accordance with Article 67 (1) EGHGB.

Provisions for the obligations from anniversary bonuses are recognised on the basis of thecompany-wide works agreement dated 10 June 2010 and the basic framework agreement dated1 June 2005. The amount of the provisions for anniversary obligations is calculated in accordance

F-123


with actuarial principles using an interest rate of 5.15% per annum and on the basis of the 2005 Gmortality tables published by Dr. Klaus Heubeck. The determination of the provisions foranniversary bonuses was based on an assumed annual increase in wages and salaries of 2.0%and an annual employee turnover rate of 1.8%. The revised accounting treatment of the provisionsfor anniversaries due to the transition to BilMoG as at 1 January 2010 (BilMoG opening balancesheet) resulted in a provision that was c90 thousand lower than the amount recognised as at31 December 2009. The excess amount was recognised as extraordinary income since it wasprobable that the amount of the reversal would not need to be added back to the provision before31 December 2024.

Provisions for the obligations from continued salary payments in the event of death wererecognised in accordance with the basic framework agreement dated 1 June 2005. The amount ofthe provisions for continued salary payments in the event of death is calculated in accordance withactuarial principles using an interest rate of 5.15% per annum and on the basis of the 2005 Gmortality tables published by Dr. Klaus Heubeck. The determination of the provisions for continuedsalary payments in the event of death was based on an assumed annual increase in wages andsalaries of 2.0% and an annual employee turnover rate of 1.8%. An amount of c12 thousand wasadded to the provisions as a result of the transition to BilMoG in accordance with Article 67 (1)EGHGB.

The accounting policies were otherwise unchanged compared with the previous year.

Fixed assets

* Intangible assets are carried at cost less straight-line amortisation in accordance with thenormal useful lives for the business; they mainly comprise computer software which isamortised over five years.

* Tangible assets are recorded at cost less straight-line depreciation in accordance with thenormal useful lives for the business. No write-downs or reversals of write-downs werenecessary.

Since 2008, low-value fixed assets between c150 and c1,000 have been pooled in acollective account for the particular financial year in accordance with the tax regulations (§ 6(2a) German Income Tax Act (Einkommensteuergesetz, ‘‘EStG’’)) and one fifth has beencharged as depreciation. All low-value fixed assets under c150 were expensed immediatelyduring the year under review in accordance with the tax regulations (§ 4 (2) EStG).

* Shares in affiliated companies under financial assets are measured at cost less valuationallowances in the event of impairment which is expected to be permanent. The shareholdingin Adler Atelier Moden GmbH, Haibach, was extinguished as at 1 July 2010 as a result of thecompany’s merger with ADVERS GmbH, Haibach. The carrying amount of the shareholding inAdler Modemarkte Gesellschaft m.b.H., Ansfelden/Austria increased by c6,722 thousand infinancial year 2010 as a result of a contribution to capital reserves by Adler ModemarkteGmbH. Long-term investments and other loans are recorded at the nominal value or the fairvalue, if lower; they contain securities amounting to c381 thousand (prior year c381 thousand)held for the purpose of covering partial retirement commitments.

The breakdown and development of fixed assets can be seen from the following statement ofchanges in fixed assets:

F-124


Develo

pm

en

to

ffi

xed

assets

Co

st

Accu

m.

dep

recia

tio

nan

dam

ort

isati

on

Net

bo

ok

valu

es

01

Jan

.

2010

Ad

dit

ion

sT

ran

sfe

rsD

isp

osals

31

Dec.

2010

01

Jan

.

2010

Ad

dit

ion

sD

isp

osals

31

Dec.

2010

31

Dec.

2010

31

Dec.

2009

e’0

00

e’0

00

e’0

00

e’0

00

e’0

00

e’0

00

e’0

00

e’0

00

e’0

00

e’0

00

e’0

00

I.In

tangib

leassets

Lic

ences

and

com

pute

rsoft

ware

......................

23,9

94

418

00

24,4

12

21,7

06

751

022,4

57

1,9

55

2,2

88

II.

Tangib

leassets

1.

Constr

uctio

ns

on

third-p

art

yla

nd

......

....

.40,9

56

594

32

1,2

85

40,2

97

32,8

79

1,7

80

1,0

07

33,6

52

6,6

45

8,0

77

2.

Opera

ting

and

offi

ce

equip

ment.

....

....

....

52,0

20

1,6

02

71,9

16

51,7

13

42,1

76

2,7

57

1,0

77

43,8

56

7,8

57

9,8

44

3.

Paym

ents

on

acco

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....

....

....

....

....

....

....

39

66

-39

066

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00

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39

93,0

15

2,2

62

03,2

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92,0

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75,0

55

4,5

37

2,0

84

77,5

08

14,5

68

17,9

60

III.

Fin

ancia

lasse

ts

1S

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sin

affi

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dcom

panie

s..

....

....

....

.405

6,7

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026

7,1

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00

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7,1

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F-125


The shares held directly and indirectly in affiliated companies relate to the following companies:

Nominal/fixed capital

31 Dec.2010 Shareholding

Equity31 Dec.

2010

Net profit/loss (-)for 2010

c’000 % c’000 e

Adler Modemarkte Gesellschaft m.b.H,Ansfelden/Austria ............................... 37 100.0 8,367 9

ADLER MODE S.A., Foetz/Luxembourg 31 100.0 3,230 652Adler Asset GmbH (formerly

F.W. Woolworth Co. Ges.m.b.H.),Ansfelden/Austria ............................... 5,087 100.0 1,752 -539

ADVERS GmbH, Haibach ...................... 25 100.0 211 -6

Current assets

* Inventories are measured at the lower of cost or market value; appropriate valuationallowances are recognised in respect of seasonal merchandise. The weighted averagemethod is used as a simplified method of valuation. Directly attributable costs of goodshandling are capitalised.

* Receivables, other assets, cash-in-hand and bank balances are carried at the nominalamount. All identifiable risks are reflected in appropriate valuation allowances. The receivablesand other assets are due within one year.

Prepaid expenses

* This item comprises expenditure prior to the balance sheet date representing expensesattributable to a particular period after the reporting date.

Provisions

The provisions take account of identifiable risks and other uncertain liabilities; they are measured atthe amount necessary according to prudent business judgment.

* The other provisions principally comprise provisions for rebates c10,107 thousand (prioryear c6,618 thousand), performance bonuses c2,260 thousand (prior year c838 thousand),rent and incidental rental costs c1,840 thousand (prior year c2,061 thousand), obligations forholidays and time off in lieu c851 thousand (prior year c704 thousand) as well as for energy/electricity/gas/water c845 thousand (prior year c831 thousand).

Liabilities

* Liabilities are carried at their repayment amount. As in the prior year, all liabilities have aremaining maturity of up to one year. Liabilities are secured using the methods normal for thesector. No assets have been pledged.

Deferred income

* Deferred income comprises amounts received prior to the balance sheet date representingincome attributable to a particular period after that date. Deferred income amounted to c87thousand (prior year c161 thousand).

Foreign currency translation

* Receivables and liabilities in foreign currencies are measured at the rate prevailing on thedate of the transaction or the date on which the transaction is recorded. Exchange rate gains(in the case of foreign currency receivables with a remaining maturity of one year or less) andexchange rate losses at the balance sheet date are included in the financial statements.

Deferred taxes

Deferred taxes are recognised in respect of the differences between the carrying amounts ofassets and liabilities in the financial statements in accordance with commercial law and their tax

F-126


bases, provided that they are expected to reverse in subsequent financial years. Deferred taxassets and deferred tax liabilities are reported after netting.

The Company does not make use of the option of recognising a deferred tax asset granted by§ 274 (1) sentence 2 HGB in the event that there is a surplus of deferred tax assets at thebalance sheet date.

Since the profit and loss transfer agreement with AMODA GmbH, Haibach, was terminated witheffect as at 31 December 2010 and by entry in the commercial register dated 1 February 2011, theCompany has been liable to tax in its own right since 1 January in 2011. A calculation of theamount of deferred taxes was therefore carried out.

The calculation of the deferred taxes was based on an effective tax rate of 27.00% (15.825% forcorporation tax including the solidarity surcharge and 11.175% for trade tax), which is expected toapply at the date when the differences reverse. The rate of trade tax is derived from the trade taxmultiplier of 320%.

As at the balance sheet date, a surplus of deferred tax assets amounting to c938 thousandresulted after netting deferred tax assets and liabilities (total differences approach). The Companydoes not make use of the option of recognising a deferred tax asset granted by § 274 (1)sentence 2 HGB with the result that no deferred taxes were recognised in the balance sheet. Thedeferred tax assets and liabilities calculated resulted from the following temporary differencesbetween the carrying amounts in the financial statements and the tax bases:

31 Dec. 2010Difference

between f/sand tax base

e’000 Tax rate

31 Dec. 2010Deferred tax

assets

e’000

Balance sheet itemConstructions on third-party land ....................................... 205 27.00% 55Inventories ......................................................................... 1,235 27.00% 334Provisions for pensions and other employee benefits ....... 238 27.00% 64Other provisions ................................................................. 1,952 27.00% 527

31 Dec. 2010Difference

between f/sand tax base

e’000 Tax rate

31 Dec. 2010Deferred tax

assets

e’000

Balance sheet itemOther liabilities ................................................................... 157 27.00% 42

The differences between the financial statements in accordance with commercial law and the taxbases, which give rise to deferred taxes, are largely the result of

* differences in measurement as a result of the findings of the company tax audit for theassessment periods up to and including 2004 (constructions on third-party land andinventories),

* differences between the requirements of commercial law and the tax regulations in themeasurement of provisions (in particular long-term provisions for personnel expenses).

III. Notes to the income statement

Sales were generated mainly in Germany and almost entirely from textile products. Salesamounting to c38,083 thousand (prior year c32,395 thousand) related to the procurement ofclothing products for the affiliated companies Adler Modemarkte Gesellschaft m.b.H., Ansfelden/Austria, and ADLER MODE S.A., Foetz/Luxembourg.

Other operating income mainly comprises rental income, income from administration costs andother costs allocated to affiliated companies and income from purchasing discounts. The itemincluded prior-period income of c1,702 thousand (prior year c5,577 thousand) resulting mainly fromreversals of provisions and from suppliers’ bonuses for earlier years.

F-127


Other operating expenses mainly comprise rental, advertising, energy and maintenance expensesand inventory management costs. Other operating expenses include prior-period expenses of c149thousand (prior year c105 thousand)

Financial income mainly consists of interest income from loans to and receivables due fromaffiliated companies amounting to c3,459 thousand (prior year c1,658 thousand).

The extraordinary income comprises income not attributable to operating activities from thesettlement of a receivable due from AMODA GmbH, Haibach, which was acquired at less than itsnominal amount (c500 thousand), and the effects recognised in profit or loss of the transition toBilMoG as at 1 January 2010. The effects of the transition relate to the provisions for pensionsand the provisions for anniversary payments and death benefits.

As a result of the tax grouping with AMODA GmbH, Haibach, no income tax liability is incurredby Adler Modemarkte GmbH. The tax grouping with AMODA GmbH was terminated as at31 December 2010.

IV. Other disclosures

Other financial obligations

The Company has obligations arising from long-term rental and lease agreements – theseamounted to c40,263 thousand (prior year c40,208 thousand) for the next twelve months. Similaramounts are expected to apply in future years.

The Company has obligations from lease agreements with Miller Leasing (mainframe computer andmagnetic disks). These amounted to an annual obligation of c644 thousand over the contractuallyagreed remaining term (30 May 2012). Vehicle lease agreements give rise to annual expenses ofc524 thousand.

The Company has obligations from rental agreements for copying machines (stores and headoffice) amounting to c78 thousand in calendar year 2011.

At the reporting date, open orders to suppliers for purchases of goods amounting to c27,417thousand were outstanding.

The Company has entered into a long-term lease for a building with Alaska GmbH & Co KG,Munich, with a contractually agreed remaining term until 31 July 2024. The resulting expenses forthe remaining term amount to c3,283 thousand (rent) and c2,078 thousand in respect of a lesseeloan. The building was sold to Alaska GmbH & Co KG in 2004 and has been leased back sincethen. The Company has an option to buy the property at the end of the lease term. The advantageof this agreement is that less capital is tied up than in the case of a purchase. Risks could arisefrom the fact that the agreement cannot be terminated prior to the end of its term.

F-128



Adler Modemarkte GmbH has issued a collateral promise (Schuldenbeitrittserklarung) in connectionwith a rental agreement entered into by ADLER MODE S.A., Foetz/Luxembourg; the rentalobligations amount to c3,193 thousand (prior year c3,739 thousand) over the remaining term of theagreement.

Adler Modemarkte GmbH has issued a letter of comfort in connection with rental agreementsentered into by Adler Modemarkte Gesellschaft m.b.H., Ansfelden/Austria; the associatedobligations amount to c41,936 thousand (prior year c43,158 thousand) over the remaining term ofthe agreements.

Adler Modemarkte GmbH has issued a letter of comfort in connection with safeguarding thebusiness operations of Adler Modemarkte Gesellschaft m.b.H., Ansfelden/Austria. In the letter,Adler Modemarkte GmbH gives a commitment to provide the subsidiary with sufficient financialresources that it is in a position at all times to meet its current and future obligations, including anydefault interest, when they are due.

The Company has a guarantee facility (Avalrahmen) in an amount of c2,000 thousand withCommerzbank in Saarbrucken. As at 31 December 2010 the guarantee facility was being utilised inan amount of c1,177 thousand. The full amount of the facility utilised was secured by a pledge oncurrent accounts in favour of Commerzbank in Saarbrucken. In addition, pledges over bankbalances have been granted to the main customs office (c1,000 thousand) and in connection withsupplier credit insurance (c1,500 thousand) in line with standard industry practice.

No liability was required to be reflected in the financial statements in respect of the aboveobligations entered into since it is not expected that the obligations will crystallise or that anyexpense will be incurred by the Company.

Apart from the other financial obligations and contingent liabilities described, there are no off-balance sheet transactions than would be significant for the financial position of the Company.

Employees

In financial year 2010 the Company had an average of 3,226 salaried employees and 166 trainees.

Supervisory board

* Markus Zollner, Bichl, industrial engineer, chairman of the supervisory board

* Mona Abu-Nusseira, Munich, business law graduate (from 1 March 2010)

* Oliver Apelt, Dusseldorf, managing director

* Dr. Hans Michael Deml, Munich, attorney (until 28 February 2010)

* Mortimer Glinz, Munich, graduate engineer (until 31 October 2010)

* Holger Kowarsch, Hochstadt, businessman

* Frank Muller, Munich, business consultant (until 28 February 2010)

* Markus Roschel, Sasbachwalden, business administration graduate (from 1 November 2010)

* Jorg Ulmschneider, Schmelz, business administration graduate (from 1 March 2010)

* Angelika Zinner1, Kettenis/Belgium, chairwoman of the general works council, AdlerModemarkt Aachen (vice-chairwoman of the supervisory board)

* Majed Abu-Zarur1, Viernheim, employee at Adler Modemarkt Neu-Edingen

* Ingrid Dusmann-Schulz1, Haibach, member of the works council, Adler Modemarkt Haibach

* Corinna Gross1, Neuss, secretary of the Essen district of the ver.di united services union

* Georg Linder1, Hosbach, section head of procurement planning, Adler Modemarkt Haibach

* Erika Ritter1, secretary of the national executive board of the ver.di union, national retailsection Berlin

The total compensation of the members of the supervisory board during the financial yearamounted to c40 thousand (prior year c40 thousand).

1 Employee representatives.

F-129


Management

* Lothar Schafer, Villmar, spokesman of the managing board and managing director for buying

* Thomas Wanke, Brunswick, managing director for sales, marketing and visual merchandising

* Jochen Strack, Linden, managing director for administration

* Dr. Martin Vorderwulbecke, Munich, managing director without portfolio (until 31 December2010)

The total compensation of the members of management in financial year 2010 amounted to c576thousand (prior year c958 thousand). The total amount paid to former members of managementand their surviving dependants was c156 thousand (prior year c156 thousand). Pension provisionsof c1,715 thousand (prior year c1,526 thousand) have been recognised for former members ofmanagement and their surviving dependants. At the reporting date for the financial statements, theliability not covered by these pension provisions following the transition to BilMoG amounts to c281thousand.

Group structure

Adler Modemarkte GmbH is the company which prepares consolidated financial statements for thelargest group of companies. The consolidated financial statements and group management reportof Adler Modemarkte GmbH including the auditors’ report are required to be published inaccordance with § 325 HGB. The consolidated financial statements are available from theregistered office of Adler Modemarkte GmbH in Haibach.

All companies in which BluO beta equity Ltd., Birmingham/United Kingdom, holds a majority of theshares directly or indirectly are regarded as affiliated companies.

Total auditors’ fees

The disclosure relating to auditors’ fees within the meaning of § 285 No. 17 HGB is not made heresince the information is contained in the consolidated financial statements of Adler ModemarkteGmbH.

Profit and loss transfer

In accordance with the profit and loss transfer agreement, the full amount of the net profit for thefinancial year is transferred to the sole shareholder AMODA GmbH, Haibach.


Schafer Strack Wanke

F-130


The following auditor’s report (Bestatigungsvermerk) has been issued in accordance with § 322German Commercial Code (Handelsgesetzbuch) in German language on the German version ofthe financial statements and the management report of Adler Modemarkte GmbH as of and for theyear ended December 31, 2010. The management report is neither included nor incorporated byreference in this offering circular.

Auditors’ Report

We have audited the annual financial statements, comprising the balance sheet, the incomestatement and the notes to the financial statements, together with the bookkeeping system, and themanagement report of the Adler Modemarkte GmbH, Haibach, for the business year from January1 to December 31, 2010. The maintenance of the books and records and the preparation of theannual financial statements and management report in accordance with German commercial laware the responsibility of the Company’s Managing Directors. Our responsibility is to express anopinion on the annual financial statements, together with the bookkeeping system, and themanagement report based on our audit.

We conducted our audit of the annual financial statements in accordance with § (Article) 317 HGB(‘‘Handelsgesetzbuch’’: ‘‘German Commercial Code’’) and German generally accepted standards forthe audit of financial statements promulgated by the Institut der Wirtschaftsprufer (Institute of PublicAuditors in Germany) (IDW). Those standards require that we plan and perform the audit such thatmisstatements materially affecting the presentation of the net assets, financial position and resultsof operations in the annual financial statements in accordance with (German) principles of properaccounting and in the management report are detected with reasonable assurance. Knowledge ofthe business activities and the economic and legal environment of the Company and expectationsas to possible misstatements are taken into account in the determination of audit procedures. Theeffectiveness of the accounting-related internal control system and the evidence supporting thedisclosures in the books and records, the annual financial statements and the management reportare examined primarily on a test basis within the framework of the audit. The audit includesassessing the accounting principles used and significant estimates made by the Company’sManaging Directors, as well as evaluating the overall presentation of the annual financialstatements and management report. We believe that our audit provides a reasonable basis for ouropinion.


In our opinion based on the findings of our audit, the annual financial statements comply with thelegal requirements and give a true and fair view of the net assets, financial position and results ofoperations of the Company in accordance with (German) principles of proper accounting. Themanagement report is consistent with the annual financial statements and as a whole provides asuitable view of the Company’s position and suitably presents the opportunities and risks of futuredevelopment.





F-131


Audited annual financial statementsof Adler Modemarkte GmbH

as at 31 December 2008 (HGB)

F-132


Income statement for the financial year from1 January 2008 to 31 December 2008

2008 2007

c c c’000

1. Sales ......................................................... 424,593,906.23 473,2022. Other operating income ............................ 15,431,782.58 15,590

440,025,688.81 488,7923. Cost of materials

Cost of purchased goods.......................... -248,621,046.89 -253,092

191,404,641.92 235,7004. Personnel expenses

a) Wages and salaries .......................... -80,776,331.60 -72,442b) Social security contributions

and expenses for old-age parttime ................................................... -14,726,639.10 -15,124(of which for old-age part timec454,776.78; prior year c464thousand)

-95,502,970.705. Amortisation of intangible assets,

depreciation of tangible assets andwrite-downs ............................................... -7,216,798.21 -6,221(of which write-downs c524,108.00;prior year c0 thousand)

6. Other operating expenses......................... -144,420,227.92 -145,958

-55,735,354.91 -4,0457. Expenses (prior year: income) from

profit and loss transfer agreements .......... -2,536,018.54 9398. Income from investments in affiliated

companies ................................................. 5,000,000.00 8,0009. Other interest and similar income............. 618,519.34 1,466

(of which from affiliated companiesc463,070.51; (prior year c1,162thousand)

10. Interest and similar expenses ................... -604,452.37 -900(of which to affiliated companiesc198,180.19; prior year c652 thousand)

2,478,048.43

11. Profit/loss from operations .................... -53,257,306.48 5,46012. Extraordinary income ................................ 48,809,173.47 013. Income taxes (benefit) .............................. 1,723,930.92 2,20114. Other taxes................................................ -55,732.00 -74

1,668,198.92

-2,779,934.09 7,58715. Income from losses assumed

(prior year: expense from profitstransferred) ................................................ 2,779,934.09 -7,587

16. Net profit for the year ............................ 0.00 0

F-133


Balance sheetas at 31 December 2008

ASSETS

31 Dec. 2008 31 Dec. 2007

c c’000

A. Fixed assetsI. Intangible assets

Licences and computer software .................................... 2,993,753.47 2,081

II. Tangible assets1. Fixtures on third-party land..................................... 9,996,033.00 11,3482. Operating and office equipment ............................. 12,499,830.00 10,974

22,495,863.00 22,322

III. Financial assets1. Shares in affiliated companies................................ 405,412.24 4052. Long-term investments............................................ 650,000.00 6503. Other loans ............................................................. 124,491.61 94

1,179,903.85 1,149

26,669,520.32 25,552

B. Current assetsI. Inventories

1. Consumables and supplies ..................................... 691,012.35 8162. Merchandise ............................................................ 57,386,506.04 54,929

58,077,518.39 55,745

II. Receivables and other assets1. Trade receivables.................................................... 6,584.79 1282. Receivables from affiliated companies ................... 17,080,949.90 35,802

(of which from the sole shareholderc5,050,770.34; prior year c0 thousand)

3. Other assets............................................................ 1,109,410.98 3,092

18,196,945.67 39,022

III. Cash-in-hand and balances with banks .......................... 23,547,935.02 23,380

99,822,399.08 118,147

C. Prepaid expenses................................................................... 1,481,936.40 1,716

127,973,855.80 145,415

F-134


EQUITY and LIABILITIES

31 Dec. 2008 31 Dec. 2007

c c’000

A. EquityI. Subscribed capital ........................................................... 15,860,000.00 15,860II. Capital reserves............................................................... 33,467,694.13 33,468

49,327,694.13 49,328

B. Provisions1. Provisions for pensions........................................... 3,089,589.00 3,1842. Provisions for taxes ................................................ 0.00 1,7783. Other provisions ...................................................... 32,066,540.60 17,598

35,156,129.60 22,560

C. Liabilities1. Liabilities to banks .................................................. 0.00 5,0002. Trade payables ....................................................... 16,247,421.84 25,8353. Liabilities to affiliated companies ............................ 16,349,468.02 31,454

(of which to the sole shareholder c0.00;prior year c7,538 thousand)

4. Other liabilities ........................................................ 10,650,509.21 10,912(of which from taxes c6,459,546.33; prior yearc7,161 thousand) (of which relating to socialsecurity c51,449.81; prior year c27 thousand)

43,247,399.07 73,201

D. Deferred income..................................................................... 242,633.00 326

127,973,855.80 145,415

F-135


Notes to the annual financial statements as at 31 December 2008

I. General information

The Company prepared its annual financial statements in accordance with the requirementsapplying to large corporations (§ 264 German Commercial Code (Handelsgesetzbuch, ‘‘HGB’’)) inconjunction with § 267 (3) and (4) HGB) and of the German Limited Liability Companies Act(GmbH-Gesetz, ‘‘GmbHG’’).

The income statement was prepared using the classifications in accordance with the nature ofexpense method pursuant to § 275 (2) HGB.

AMODA GmbH, Dusseldorf, holds 100% of the shares in Adler Modemarkte GmbH, Haibach.

II. Accounting policies and notes to the balance sheet

In financial year 2008 the directly attributable costs of merchandise processing recharged to AdlerModemarkte GmbH by MOTEX Mode-Textil-Service Logistik und Management GmbH werecapitalised for the first time as incidental costs of acquisition of the merchandise. This changereflected the full-cost approach and therefore improved the view presented of the net assets andresults of operations. The incidental costs of purchase of merchandise amounted to c16,409thousand and increased the amount of inventories as at 31 December 2008 by c4,128 thousand;the remaining costs of c12,281 thousand were charged to the cost of materials, while otheroperating expenses were reduced in total by c16,409 thousand.

The accounting policies were otherwise unchanged compared with the previous year.

Fixed assets

* Intangible assets are carried at cost less straight-line amortisation in accordance with thenormal useful lives for the business; they mainly comprise computer software which isamortised over five years.

* Tangible assets are recorded at cost less straight-line depreciation in accordance with thenormal useful lives for the business. In financial year 2008 write-downs amounting to c524thousand were recognised in respect of tangible fixed assets as a result of store closures.

Low-value fixed assets with individual values up to c150 are written off immediately andtreated as disposals.

* Shares in affiliated companies under financial assets are measured at cost less valuationallowances in the event of impairment which is expected to be permanent. Long-terminvestments and other loans are recorded at the nominal amount or the fair value, if lower;these include securities amounting to c650 thousand purchased for the purpose of coveringpartial retirement commitments that have been transferred into the administration of a trusteein order to protect against the risk of insolvency.

The breakdown and development of fixed assets can be seen from the following statement ofchanges in fixed assets:

F-136


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F-137


The shares held directly and indirectly in affiliated companies relate to the following companies:

Nominal/fixed capital31 Dec. 2008

Share-holding

Equity31 Dec. 2008

Net profit/loss (-)

for the year

c’000 % c’000 c’000

Adler Modemarkte Gesellschaft m.b.H,Vosendorf/Austria ................................... 37 100.0 1,612 -2,133

ADLER MODE S.A., Foetz/Luxembourg .... 31 100.0 2,379 1,181Adler Atelier Moden GmbH ........................ 67 100.0 67 -2,5361

MOTEX Mode-Textil-Service Logistik undManagement GmbH ............................... 26 100.0 7,066 1,620

ADVERS Versicherungsmakler GmbH ....... 25 100.0 188 104

1 Before losses assumed.

Current assets

* Inventories are measured at the lower of cost or market value; appropriate valuationallowances are recognised in respect of seasonal merchandise. The weighted averagemethod is used as a simplified method of valuation. Directly attributable costs of merchandiseprocessing are capitalised. For details of the change of measurement policy, please see thenote on page 7.

* Receivables, other assets, cash-on-hand and bank balances are carried at the nominalamount. All identifiable risks are reflected in appropriate valuation allowances. The receivablesand other assets are due within one year.

* Receivables from affiliated companies amounting to c6,450 thousand (prior year c8,771thousand) relate to short-term loans and amounting to c5,580 thousand (prior year c6,002thousand) relate to the Company’s deliveries of goods and services and are all due withinone year.

Prepaid expenses

* This item comprises expenditure prior to the balance sheet date representing expensesattributable to a particular period after the reporting date.

Provisions

The provisions take account of identifiable risks and other uncertain liabilities; they are measured atthe amount necessary according to prudent business judgment.

* Pension provisions were calculated using the projected unit credit method. The followingmeasurement parameters were applied: Heubeck 2005 mortality tables, interest rate 5.85%(prior year 5.6%), increase in pensions 2.0% (prior year 1.7%), rate of inflation 2.25% (prioryear 2.0%).

* Other provisions mainly comprise provisions for restructuring costs of which c7,597thousand related to personnel expenses and c7,026 thousand to non-staff costs andprovisions for discounts (c8,774 thousand; prior year c9,112 thousand) and other personnel-related obligations (c4,443 thousand; prior year c5,802 thousand).

Liabilities

* Liabilities are carried at their repayment amount. All liabilities have a remaining maturity of upto one year. In the prior year, all liabilities also had a remaining maturity of up to one year.Liabilities are secured using the methods normal for the sector. No assets have beenpledged.

* Liabilities to affiliated companies amounting to c13,689 thousand (prior year c13,232thousand) relate to deliveries of goods and services and amounting to c2,660 thousand (prioryear c10,684 thousand) relate to short-term loans and are all due within one year.

F-138


Deferred income

* Deferred income comprises amounts received prior to the balance sheet date representingincome attributable to a particular period after that date.

Foreign currency translation

* Receivables and liabilities in foreign currencies are measured at the rate prevailing on thedate of the transaction or the date on which the transaction is recorded. Exchange rate lossesas at the balance sheet date are included in the financial statements.

III. Notes to the income statement

Sales are generated almost wholly in Germany and only from textile goods. Sales amounting toc36,381 thousand (prior year c40,510 thousand) related to the procurement of clothing products forthe affiliated companies Adler Modemarkte Gesellschaft m.b.H., Vosendorf/Austria and ADLERMODE S.A., Foetz/Luxembourg.

Other operating income mainly comprises, as in the previous year, rental income, income fromadministration costs and other costs allocated to affiliated companies and income from purchasingdiscounts. The item includes prior-period income of c1,122 thousand (prior year c1,312 thousand).

Other operating expenses mainly comprise, as in the previous year, rental, advertising, energyand maintenance expenses.

Extraordinary income includes the income subsidies from the shareholder amounting to c40,000thousand not allocated to operating activities, a waiver of the receivable relating to the profit andloss transfer for 2008 amounting to c7,587 thousand and the waiver by METRO AG of a claim forrepayment of VAT of c1,221 thousand.

As a result of the grouping for tax purposes with AMODA GmbH, Dusseldorf, no tax effects arereflected in the Company’s financial statements.

Income taxes mainly comprise prior-period income amounting to c1,646 thousand plus accruedinterest from the reversal of a provision in the light of the results of the company tax audit for theperiod from 1999 to 2004.

IV. Other disclosures

Other financial obligations

The Company has obligations arising from long-term rental and lease agreements – theseamounted to c43,279 thousand (prior year c45,345 thousand) for the next twelve months, of whichc11,570 thousand (prior year c11,990 thousand) was due to affiliated companies included in theconsolidated financial statements. Similar amounts are expected to apply in future years, aftertaking into account store closures.

The Company has obligations from lease agreements with IBM (mainframe computer and magneticdisks), amounting to c2,873 thousand in each of the next three years.

The Company has obligations from rental agreements (stores and head office) for copyingmachines, amounting to c105 thousand in calendar year 2009.

We have leased nine Mini Coopers for advertising purposes until 31 August 2009, for which theCompany has an obligation amounting to c72 thousand.

As at the balance sheet date, we had open orders of c359 thousand in connection withadministration and sales activities and c20,667 thousand in respect of the purchase of goods fromsuppliers, of which c8,887 thousand related to affiliated companies.


Adler Modemarkte GmbH has issued a collateral promise (Schuldenbeitrittserklarung) in connectionwith a rental agreement entered into by ADLER MODE S.A., Foetz/Luxembourg – the rentalobligations amount to c4,273 thousand (prior year c4,807 thousand) over the remaining term of theagreement.

Adler Modemarkte GmbH has issued a letter of comfort in connection with rental agreementsentered into by Adler Modemarkte Gesellschaft m.b.H., Vosendorf/Austria; the associated

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obligations amount to c20,507 thousand (prior year c22,968 thousand) over the remaining term ofthe agreements.

Adler Modemarkte GmbH has issued a letter of comfort in connection with the imminentoverindebtedness of Adler Modemarkte Gesellschaft m.b.H., Vosendorf/Austria. In the letter, AdlerModemarkte GmbH gives a commitment to provide the subsidiary with sufficient financial resourcesthat it is in a position at all times to meet its current and future obligations, including any defaultinterest, when they are due.

Employees

In financial year 2008 the Company had an average of 2,451 (prior year 2,627) salaried employeesand 178 (prior year 193) trainees.

Supervisory board

Zygmunt Mierdorf, Dusseldorf, member of the management board of METRO AG (chairman)

Werner Arndt, Dusseldorf, department head of legal & projects at METRO AG

Dr. Hans-Jorg Gidlewitz, Duisburg, section head of planning & controlling at METRO AG

Georg W. Mehring-Schlegel, Dusseldorf, section head of group strategy at METRO AG (from19 June 2008)

Dr. Stephan Korkemeyer, Dusseldorf, compensation & benefits at METRO AG (from 19 June 2008)

Dr. Jurgen Pfister, Dusseldorf, personnel & social matters at METRO AG (from 19 June 2008)

Sibylle Gottschalk, Kelkheim, businesswoman (until 18 June 2008)

Wolfgang Kraus, Meerbusch, former member of the management board of Kaufhof Warenhaus AG(until 18 June 2008)

Gunter Schmittdiel, former managing director of Adler Modemarkte GmbH, Birkenfeld (until 18 June2008)

Angelika Zinner,1 Kettenis/Belgium, chairwoman of the general works council, Adler ModemarktAachen (vice-chairwoman of the supervisory board)

Ingrid Dusmann-Schulz1, Haibach, member of the works council, Adler Modemarkt Haibach

Corinna Gross1, Neuss, secretary of the Essen district of the ver.di united services union

Sabine Heckel1, Großfriesen, specialist sales adviser Adler Modemarkt Plauen-Kauschwitz

Georg Linder1, Hosbach, section head of procurement planning, Adler Modemarkt Haibach

Erika Ritter1, secretary of the national executive board of the ver.di union, national retail

Malene Volkers1, Berlin, secretary of the national executive board of the ver.di union, national retailsection Berlin (until 18 June 2008)

The total compensation of the members of the supervisory board during the financial yearamounted to c39 thousand (prior year c53 thousand).

1 Employee representatives.

Management

Wolfgang Krogmann (chairman), Hamburg, managing director for coordination and sales

Tono Volmary, Dusseldorf, commercial managing director (until 29 August 2008)

Reinhard Muller, Dusseldorf, commercial managing director (from 19 September 2008)

Andreas Oerter, Haibach, managing director for buying/marketing

Hans-Otto Ulbrich, Bessenbach, managing director for sales/marketing (until 30 June 2008)

The total compensation of the members of management in financial year 2008 amounted to c1,407thousand (prior year c1,445 thousand). The total amount paid to former members of managementand their surviving dependants was c156 thousand (prior year c155 thousand). Pension provisionsof c1,775 thousand (prior year c1,553 thousand) have been recognised to date for formermembers of management and their surviving dependants.

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Group structure

The Company is a subsidiary of AMODA GmbH, Dusseldorf. The latter company in turn is amember of the METRO group.

The Company’s ultimate parent company, which prepares consolidated financial statements for thelargest group of companies, is METRO AG, Dusseldorf. Adler Modemarkte GmbH and itssubsidiaries are included in the consolidated financial statements of METRO AG via AMODAGmbH, Dusseldorf. The consolidated financial statements and group management report ofMETRO AG including the auditors’ report are required to be published in accordance with § 325HGB. The consolidated financial statements are available from the registered office of METRO AGin Dusseldorf.

All investee companies in which a majority of the shares are held directly or indirectly by the aboveparent company are regarded as affiliated companies.

Profit and loss transfer

In accordance with the profit and loss transfer agreement, the full amount of the loss for thefinancial year is assumed by the parent company.


Krogmann Muller Oerter

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Auditors’ Report

We have audited the annual financial statements, comprising the balance sheet, the incomestatement and the notes to the financial statements, together with the bookkeeping system, and themanagement report of the Adler Modemarkte GmbH, Haibach, for the business year from January1 to December 31, 2008. The maintenance of the books and records and the preparation of theannual financial statements and management report in accordance with German commercial laware the responsibility of the Company’s Managing Directors. Our responsibility is to express anopinion on the annual financial statements, together with the bookkeeping system, and themanagement report based on our audit.

We conducted our audit of the annual financial statements in accordance with § (Article) 317 HGB(‘‘Handelsgesetzbuch’’: ‘‘German Commercial Code’’) and German generally accepted standards forthe audit of financial statements promulgated by the Institut der Wirtschaftsprufer (Institute of PublicAuditors in Germany) (IDW). Those standards require that we plan and perform the audit such thatmisstatements materially affecting the presentation of the net assets, financial position and resultsof operations in the annual financial statements in accordance with (German) principles of properaccounting and in the management report are detected with reasonable assurance. Knowledge ofthe business activities and the economic and legal environment of the Company and expectationsas to possible misstatements are taken into account in the determination of audit procedures. Theeffectiveness of the accounting-related internal control system and the evidence supporting thedisclosures in the books and records, the annual financial statements and the management reportare examined primarily on a test basis within the framework of the audit. The audit includesassessing the accounting principles used and significant estimates made by the Company’sManaging Directors, as well as evaluating the overall presentation of the annual financialstatements and management report. We believe that our audit provides a reasonable basis for ouropinion.


In our opinion based on the findings of our audit, the annual financial statements comply with thelegal requirements and give a true and fair view of the net assets, financial position and results ofoperations of the Company in accordance with (German) principles of proper accounting. Themanagement report is consistent with the annual financial statements and as a whole provides asuitable view of the Company’s position and suitably presents the opportunities and risks of futuredevelopment.



Peter Neugebauer ppa. Stefan SigmannWirtschaftsprufer Wirtschaftsprufer(German Public Auditor) (German Public Auditor)

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Statement of cash flows for the financial year from1 January 2008 to 31 December 2008

2008

c’000

Loss for the period before extraordinary items and profit and loss transfer ....................... -42,780Depreciation, amortisation and write-downs on fixed assets .............................................. 7,217Increase in provisions ......................................................................................................... 12,596Losses on disposals of fixed assets ................................................................................... 518Write-downs of other assets ............................................................................................... 252Decrease in inventories, trade receivables and other assets not related to investing or

financing activities........................................................................................................... 16,712Decrease in trade payables and other liabilities not related to investing or financing

activities .......................................................................................................................... -16,950

Cash flows from operating activities .............................................................................. -22,435

Proceeds from disposals of fixed assets ............................................................................ 407Payments for investments in tangible and intangible fixed assets...................................... -9,229Payments for investments in financial assets ..................................................................... -31

Cash flows from investing activities............................................................................... -8,853

Proceeds of income subsidy from shareholder................................................................... 40,000Contributions to capital reserves......................................................................................... 0Repayments of loans .......................................................................................................... -5,000Payment from change in intra-Group financing arrangements with ADLER subsidiaries ... -3,545

Cash flows from financing activities .............................................................................. 31,455

Change in cash and cash equivalents ................................................................................ 167Cash and cash equivalents at beginning of period ............................................................. 23,381

Cash and cash equivalents at end of period ................................................................. 23,548

Cash and cash equivalents as at 31 December 2008 consisted solely of cash-in-hand andbalances with banks.

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Statement of changes in equityfor the financial year from 1 January 2008 to 31 December 2008

2008 statement of changes in equity

Subscribedcapital

Capitalreserves

Revenuereserves

Net retainedprofits/

accumulatedlosses Total equity

c c c c c

As at 01 Jan. 2008 ...... 15,860,000 33,467,693 0 0 49,327,693

Net loss for the year ..... 0 0 0 0 0

Contribution to capitalreserves.................... 0 1 0 0 1

As at 31 Dec. 2008 ...... 15,860,000 33,467,694 0 0 49,327,694

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Auditors’ Report

To Adler Modemarkte GmbH, Haibach:

We have audited the statement of changes in equity and the cash flow statement for financial year2008 derived by the company from the annual financial statements for the financial year 2008 aswell as from the underlying bookkeeping system. The statement of changes in equity and cashflow statement supplements the annual financial statements of Adler Modemarkte GmbH, Haibach,for the financial year 2008 prepared on the basis of German commercial law provisions.

The preparation of the statement of changes in equity and the cash flow statement for the financialyear 2008 in accordance with German commercial law provisions is the responsibility of thecompany’s legal representatives.

Our responsibility is to express, based on the audit performed by us, an opinion as to whether thestatement of changes in equity and the cash flow statement for financial 2008 has been properlyderived from the annual financial statements for the financial year 2008 as well as from theunderlying bookkeeping system in accordance with German commercial law provisions. The subjectmatter of this engagement did not include the audit of the underlying annual financial statementsas well as the underlying bookkeeping system.

We have planned and performed our audit in compliance with the IDW Auditing PracticeStatement: Audit of Additional Elements of Financial Statements (IDW AuPS 9,960.2) such that anymaterial errors in the derivation of the statement of changes in equity and the cash flow statementfrom the annual financial statements as well as the underlying bookkeeping system are detectedwith reasonable assurance.

In our opinion, which is based on the findings obtained during the audit, the statement of changesin equity and the cash flow statement for financial year 2008 has been properly derived from theannual financial statements for financial year 2008 as well as the underlying bookkeeping system inaccordance with German commercial law provisions.



Rudiger Dresel ppa. Axel OstWirtschaftsprufer Wirtschaftsprufer(German Public Auditor) (German Public Auditor)

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GLOSSARY

AktG .............................................. Aktiengesetz (German Stock Corporation Act).

BaFin............................................. Bundesanstalt fur Finanzdienstleistungsaufsicht (FederalFinancial Supervisory Authority).

BauGB .......................................... Baugesetzbuch (German Federal Building Code).

BauNVO ........................................ Baunutzungsverordnung (German Federal Land UtilisationOrdinance).

Best Ager ..................................... Term to describe ladies and gentleman who are older than 45years

BGB............................................... Burgerliches Gesetzbuch (German Civil Code).

bluO .............................................. bluO beta equity Limited, Karntner Ring 5-7, A-1010 Vienna,registered at Companies House Cardiff under 6697201.

Cross-selling ................................ Full utilisation of established customer relationships to achieveadditional product sales.

Convenience shopping ............... Term to describe a form of shopping where consumers attachparticular importance to convenience when shopping.

Concession concept ................... Form of merchandising in textile retail where products of a fashioncompany or a brand are displayed separately, both visually andspatially, from products of other fashion companies or brands,and the manufacturer specifies which furnishings but not whichrear walls and flooring are to be used.

Discount store ............................. Retailers whose overriding strategic objectives are to achieveprice leadership and cost benefits.

EBIT .............................................. Earnings before Interest and Taxes. The Company understandsthis key company ratio to be its operating result.

EBITDA ......................................... Earnings before Interest, Taxes, Depreciation and Amortisation.The Company understands this key company ratio to be its EBITbefore amortisation of intangible assets and depreciation ofproperty, plant and equipment.

E-commerce ................................. Purchase and sale of goods and services over the Internet.

EU.................................................. European Union.

Fashion follower.......................... A concept where the fashion company does not generally attemptto create new trends with its new collections, but rather promptlyadapts promising new trends in its collections. Also describespersons who do not react to fashion trends until they have beenaccepted and are commonly seen in public and in the media.

Sales density ............................... Sales revenue per square metre of ‘‘net sales area’’ (sales flooraccording to the rental agreement less fitting rooms, cashregisters, lounges, shop windows).

Frequency..................................... In retail, this refers to the number of customers in a certain period.Frequency can be measured for the location as well as for theindividual departments of the store.

Large-space retail concept......... In textile retail, stores with a sales area of more than 800 m2.

HGB............................................... Handelsgesetzbuch (German Commercial Code).

IDW................................................ Institut der Wirtschaftsprufer in Deutschland e.V. (Institute ofPublic Auditors in Germany), Dusseldorf.

Coordinates department ............. Form of merchandising used in textile retail where variouscompatible products (e.g. trousers, jumpers and jackets) areoffered within one department.

International FinancialReporting Standards (IFRS) .......

Firstly, the generic term for all accounting provisions promulgatedby the International Accounting Standards Committee. Secondly,accounting provisions newly adopted by the International

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Accounting Standards Board (IASB) since 2003. The provisionsadopted until 2002 continue to be published as InternationalAccounting Standards (IAS). The IASs shall only be renamed asIFRS in the case of fundamental changes to the provisions ofalready existing standards.

Lean management ....................... Management approach characterised in particular by the basicprinciples of decentralisation and parallel processing, with the aimof bringing about a stronger customer orientation whileconsistently lowering costs for management as a whole.

Store ............................................. An individual branch of Adler.

Multi-channel strategy ................ Selling of products via a number of different distribution channels.

Multi-format strategy................... Image and product promotion using various media.

NOS items .................................... Abbreviation for Never-Out-of-Stock items. These are items thatare always in stock and which are automatically replenished whenthey sell out.

One-stop-shopping...................... Expression used to describe the possibility for customers tosatisfy a number of complementary needs, due to a retailer’sbroad and extensive product range.

Online shop ................................. A company’s trading platform on the Internet that enablescustomers to view, order and pay for products online.

Point of sale ................................ Place of sale, at which customers have direct contact with themerchandise and can be targeted with sales promotion measuresto encourage impulse buys.

Retail park .................................... Areas in locations on the outskirts of towns and cities, wherebranches of different retail chains are situated, with adjacentparking facilities.

RFID .............................................. Abbreviation of radio-frequency identification. This is anelectronic goods tracking and tagging system.

Shop-in-shop................................ Form of merchandising in textile retail where products of a fashioncompany or a brand are displayed separately, both visually andspatially, from products of other fashion companies or brands,and the manufacturer specifies which furnishings and which rearwalls and flooring are to be used.

Socialwear .................................... Clothing that has been manufactured in compliance with certainsocial and ecological standards.

Core department.......................... Form of merchandising in textile retail where different versions ofthe same product (e.g. trousers, jacket) are offered in greaterdepth, frequently sorted by size, colour or fabric.

Testimonial................................... The term testimonial is an advertising term that refers to thespecific recommendation – to increase the credibility of theadvertising message – of a product, a service, an idea or aninstitution by a person who is usually known to the target group.

Tex-Store ...................................... Software that enables closer integration of design, purchasingand visual merchandising.

Value-for-money supplier ........... Supplier of high-quality products with an attractive price-performance ratio.

Visual merchandising ................. Collective term used to describe visual measures taken topromote sales at the final point of sale. Visual merchandisingincludes, for example, the store construction, the presentation ofgoods, the design of the sales area and the arrangement of goodsor advertising materials.

WpHG............................................ Wertpapierhandelsgesetz (German Securities Trading Act).

WpPG ............................................ Wertpapierprospektgesetz (German Securities Prospectus Act).

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RECENT DEVELOPMENTS AND OUTLOOK

In the first few months of the 2011 financial year, Adler was able to follow on from the positivedevelopments in the 2010 financial year. It should be noted here that sales, profits and financingrequirements in the textile industry are subject to seasonal fluctuations. For example, sales andprofits in the first six months of the calendar year, especially in the first quarter, are generally lowerthan in the third and fourth quarters of the calendar year. In addition, there is an increased needfor financing due to annual peak periods for purchases of goods in February and March (and againin August and September). Given that Adler’s financial year corresponds to the calendar year andtherefore begins on 1 January 2011 - in contrast to the financial year of certain other companies inthe textile industry - these effects have a negative impact on the first quarter of Adler’s financialyear, which is completely compensated for particluarly by the second and fourth quarter. ThereforeAdler realised a consolidated net loss for the first quarter of past financial years and the currentfinancial year. However, this loss decreased again significantly from c12,314 thousand in the firstquarter of financial year 2010 to a loss of c8,850 thousand in the first quarter of financial year2011. At the same time, Adler’s net indebtedness increased from c63,525 thousand as at 31December 2010 to c98,793 thousand as at 31 March 2011 due to seasonal factors. This increasein net indebtedness was offset by an increase in inventories from c56,749 thousand as at 31December 2010 to c78,281 thousand as at 31 March 2011.

As Adler’s gross profit margin on merchandise improved, it increased its revenues by 9.1% fromc84,249 thousand in the first quarter of financial year 2010 to c91,906 thousand in the first quarterof financial year 2011. This development is particularly noteworthy given the fact that revenuesgenerated in the week preceding Easter are usually higher; in financial year 2010, these pre-Easterrevenues were generated in the first quarter while in financial year 2011 they were not recordeduntil the second quarter, and thus will be reported for the first time in the semi-annual report.Revenue and profit increased year-on-year, a development which persisted into the first quarter ofthe 2011 financial year. Adler expects to generate a significantly positive result as compared to thefirst quarter of 2010, with a revenue increase in at least the high single-digit percentage range.

To date in financial year 2011, Adler has expanded its store network by an additional four stores.In addition, leases have already been signed for several stores in additional locations. TheCompany is currently negotiating leases for additional stores. Adler plans to continue to expand itsstore network throughout financial year 2011, as well as to upgrade a large number of stores andto expand its offering of selected external brands into additional stores under the shop-in-shopmodel. Adler expects further sales growth in 2011 as a result of these measures, its ownsportswear brand, ‘‘Eibsee’’, which was successfully launched towards the end of the first quarter,and the growing acceptance of its online shop.

With regard to costs, prices are rising, particularly as a result of high global prices for cotton. Todate, Adler has successfully compensated for this price increase by raising its sales prices and isof the opinion that it will be able to continue to do so in the future in case of further price increase,although the global prices for cotton has been falling since March 2011. As far as personnelexpenses are concerned, Adler benefited from a company internal wage agreement concluded atthe end of 2010, however this has to be seen in light of an increase in staff numbers as a resultof the Company’s expansion. The costs of the IPO could constitute an additional burden on profit,with the share of costs attributable to the New Shares intended to be sold pursuant to the Offering,less the associated income tax benefits, being recognised directly in equity.

Provided that there are no notable negative effects on Adler’s procurement and sales and providedany further increases in the price of cotton can continue to be offset by higher sales prices, andassuming that the newly opened stores make their budgeted contribution to profits in the 2011financial year already, the Company believes that Adler can increase its sales in the remainder ofthe 2011 financial year compared to the previous year and thus also improve its profits.

On 1 March 2011, the shareholders’ meeting resolved to reorganise the Company as a stockcorporation under German law. This reorganisation took effect when it was registered in thecommercial register on 17 March 2011.

There have been no material changes to Adler’s financial condition and results of operations sincethe end of the last reporting period for which financial information is published in this OfferingMemorandum, i.e. since the end of 31 March 2011, to the date of this Offering Memorandum.

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Haibach, Paris, 27 May 2011

Adler Modemarkte AG

signed Lothar Schafer signed Jochen Strack signed Thomas Wanke

CREDIT AGRICOLECORPORATE AND INVESTMENT

BANK

signed Sylvia M. Seignette signed Peter Thomas

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Offering Memorandum - Adlermode Unternehmen

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