Hans Einhell AG, Landau / Isar Consolidated balance sheet to 31 December 2007

Assets

Notes A. Non-current assets I. Intangible assets 1. Franchises, development costs, trademarks, patents and licences and similar rights and values and licenses and similar rights and values 2. Goodwill 3. Prepayments on intangible assets Property, plant and equipment 1. Land, leasehold rights and buildings, including buildings on non-owned land 2. Technical equipment, plant and machinery 3. Other equipment, fixtures and fittings and equipment 4. Prepayments and plant and machinery under construction Non-current financial assets Security investments Other non-current assets Deferred tax assets (2.6) (2.4) (2.1) 31.12.2007 31.12.2006
(2.2) 3.050.054,76 7.548.412,47 43.901,43 3.380.355,33 2.216.093,42 0,00

10.642.368,66

5.596.448,75
12.982.803,86 354.489,37 3.416.558,80 5.351,71

16.759.203,74

11.065.157,36 481.274,20 2.921.453,73 66.088,66

14.533.973,95

976.223,95 2.953.468,12 4.960.829,91 36.292.094,38
955.006,15 4.475.426,81 3.704.346,35 29.265.202,01

IV. V.

B. Current assets I. Inventories 1. Raw materials and supplies 2. Work in progress 3. Finished goods 4. Prepayments Receivables and other current assets 1. Trade receivables 2. Other current assets Cash and bank balances and cheques (2.5) 465.310,64 219.069,27 98.139.818,62 678.585,71 (2.6) 67.591.973,08 13.943.696,26 81.535.669,34 53.186.424,91 16.036.844,32 69.223.269,23 1.293.705,29 290.038,19 74.212.652,70 0,00

99.502.784,24

75.796.396,18
14.591.975,40 195.630.428,98 231.922.523,36
26.325.040,86 171.344.706,27 200.609.908,28

0148-1223456

Liabilities
Notes A. Equity I. II. III. Subscribed capital Capital reserves Retained earnings 1. Legal reserve 2. Other earnings reserve Minority interest Other cumulated equity Adjustment charges for foreign currency exchange (2.8) (2.10) 9.662.464,00 26.676.696,37 9.662.464,00 26.676.696,37 31.12.2007 31.12.2006

(2.10)

54.708,23 60.576.308,72
60.631.016,95 4.609.787,66 -1.825.890,08 -2.806.257,12 14.853.637,66 111.801.455,44

54.708,23 52.062.375,50

52.117.083,73 2.904.054,88 -880.474,29 -1.255.062,75 9.569.360,51 98.794.122,45

IV. V. VI.

(2.11) (2.12)
VII. Consolidated net income
Non-current liabilities 1. Non-current liabilities to banks 2. Bonded loans 3. Pension obligations 4. Other provisions 5. Non-current liabilities 6. Deferred taxes
(2.13) (2.13) (2.14) (2.15) (2.17) (2.4)
15.437.500,00 30.000.000,00 1.598.044,00 524.874,27 3.257.905,85 1.960.542,77 52.778.866,89
16.047.218,95 30.000.000,00 1.730.424,00 311.237,65 245.001,00 2.127.495,25 50.461.376,85
C. Current liabilities 1. Provisions for taxes 2. Other provisions 3. Current liabilities to banks 4. Trade payables 5. Other liabilities
(2.15) (2.16) (2.17) (2.17)
1.486.367,09 17.860.396,83 2.397.432,36 32.147.717,36 13.450.287,39 67.342.201,03
2.408.047,69 17.594.533,04 770.684,22 20.439.617,48 10.141.526,55 51.354.408,98

231.922.523,36

200.609.908,28
Hans Einhell AG, Landau / Isar Consolidated income statement for the period from 1 January to 31 December 2007
1. Revenues 2. Decrease (previous year: increase) in finished goods and work in progress 3. Own work capitalised 4. Other operating income 5. Cost of materials a) Cost of raw materials and supplies b) Cost of purchased services 6. Personnel expenses a) Wages and salaries b) Social security, pensions and other benefit costs 7. Depreciation and amortisation costs and other write-offs on intangible assets, plant and equipment 8. Other operating expenses 9. Net finance costs 10. Profit from operations 11. Income taxes 12. Consolidated net income 13. Share of other shareholders in consolidated net income 14. Consolidated net income less share of other shareholders 15. Retained earnings carried forwards 16. Transfer to other retained earnings 17. Consolidated net profit * the income statement 2006 includes pro rata figures from the company deconsolidated on 29 December 2006: weka Holzbau GmbH, Neubrandenburg.

(2.1) (3.4) (3.5) (3.6)

2007 385.716.396,54 -70.968,92 0,00 7.074.983,25 -278.356.772,99 -599.589,27 -27.983.120,15 -4.874.425,74
2006 * 411.760.429,63 404.290,71 33.629,75 5.453.262,47 -293.572.489,47 -246.322,26 -30.812.035,80 -5.796.150,19

-278.956.362,26

Capitalisation of costs begins with the initial fulfilment of the above criteria. Costs recognised as expenses in the prior reporting period may not be capitalised retrospectively. Other than development costs, there are no self-produced intangible assets. Capitalised development costs are amortised by the straight-line method over the estimated useful life of the asset, but not normally for more than three years. The realisable amount of development costs is estimated if there are indications of impairment of the asset or indications that previous impairment losses no longer exist.
Goodwill from capital consolidation pursuant to the purchase method stipulated by IAS 22/IFRS 3 is recognised at acquisition cost less cumulated amortisation and impairment expenses. Property, plant and equipment is normally depreciated on a straight-line basis. If an item of property, plant or equipment is sold or destroyed, relevant acquisition costs and cumulated depreciation are derecognised; any realised profit or loss from the disposal is recognised in the income statement. Maintenance and repair costs for property, plant and equipment or maintenance costs for intangible assets are recognised as an expense when they arise. Subsequent expenses which meet the criteria for an asset are recognised as subsequent acquisition costs for the relevant property, plant and equipment. IAS 38 distinguishes between assets with limited useful lives and assets with unlimited useful lives. Basically, all intangible assets and property, plant and equipment which are shown on the balance sheet of the Einhell Group have only limited useful lives. Only goodwill is not amortised. Depreciation and amortisation of assets of use for a limited period is made taking into account the estimated useful life of the assets. Estimated useful lives are:
Estimated useful life Years Intangible assets: Development costs, franchises, trademarks and similar and licences Property, plant and equipment: Buildings Technical equipment, plant and machinery Other equipment, fixtures, fittings and equipment 20 - - - 10 3-5
Estimated useful lives and depreciation and amortisation methods for a depreciable intangible asset and property, plant and equipment must be checked periodically to see if the depreciation and amortisation periods and methods are in line with expected economic use of the asset for property, plant and equipment. Property, plant and equipment which is no longer used is shown as the lower of carrying amount or the estimated net realisable value less sale costs.
Financial assets Securities under investment assets refers mainly to a money market fund to hedge pensions, holiday and flexible working hours entitlement. Financial instruments are recognised on the day of transaction and derecognised upon realisation. Valuation is made at fair value against the new valuation reserve in equity. Determination of fair value is made by bank valuations. Earnings from the fund amounted to 19 thousand (previous year 15 thousand) and the expected yield is 3%. Deferred taxes The amount of income tax levied depends on the amount of profits and takes into account deferred taxes which are determined in accordance with the asset and liability method. Determination of deferred taxes is made pursuant to IAS 12: temporary differences between the carrying amounts shown in the consolidated financial statements and the tax values of assets and liabilities are shown as future probable tax savings and charges. Measurement of deferred tax assets and liabilities is made on the basis of tax rates for the period in which the temporary differences will probably be reversed. The expected tax rate is determined on the basis of tax rates applicable or mainly applicable at balance sheet date for this period. Deferred tax assets and liabilities are not discounted and are shown separately in the balance sheet. Actual taxes and deferred taxes are charged or credited directly in equity if the tax refers to items which are charged or credited directly in equity in the same or another period. No deferred tax liabilities may be set aside for undistributed profits from foreign investments which are to remain invested in this company for an indeterminate time. A deferred tax liability is recognised for all temporary differences with the exception of temporary differences for goodwill, for which tax amortization is not deductible.

Deferred taxes

Deferred tax claims and liabilities of the company are as follows:

Deferred tax claims 2007

Deferred tax liabilities 2007

Net deferred taxes 2007

Non-current assets Current assets Other financial investments at present value Pension obligations Provisions Tax losses carried forwards Total

58 2,0 1,4,961

45 1,0 1,3,704

-57 -0 1,961

1,158 1,080 -75 -0 2,127

-877 1,25 1,3,000

-1,1,1,577
Deferred tax assets amounting to 25 thousand (previous year: 101 thousand) from differences in pension obligations under IFRS and the tax accounts are shown with a negative sign under deferred tax liabilities, as the netting option for deferred tax liabilities is being utilised. Deferred taxes result from the above items from the following circumstances: capitalisation and amortisation of development costs property, plant and equipment: increased tax write-offs result in tax valuations being less than carrying amount. valuation of trade receivables is made differently than in the tax accounts. financial assets valued at present value (available-for-sale assets and financial trading assets) show differing tax and carrying amounts, as an impairment is only made for accounting purposes and not for tax purposes. valuation of pension provisions is different than in the tax account. in some local financial statements of foreign subsidiaries, deferred expenses may not be deducted for tax purposes until they occur, whereas they can be deducted for tax purposes in the financial statements over a longer period of time.

Inventories

31.12.2007 thousand 31.12.2006 thousand 1,74,75,796
Raw materials and supplies (at acquisition cost) Work in progress (at production cost) Finished goods (at cost) less impairment Prepayments Total

98,99,503

Devaluation amounting to 7,062 thousand (previous year: 7,789 thousand) was made. The carrying amount of devalued goods amounts after devaluation to 34,472 thousand (previous year: 11,034 thousand). No goods were assigned by way of collateral at balance sheet date (previous year: 1,461 thousand).
Receivables and other assets
Trade receivables were shown after allowances for bad debt. Other assets are shown at nominal value less specific allowances for bad debt. Other current assets include income tax receivables of 971 thousand (previous year: 1,234 thousand), and other non-current assets include income tax receivables of 1,240 thousand (previous year: 1,517 thousand). Trade receivables and other current assets all have a maturity of up to one year.

Personnel expenses and average number of employees

Personnel expenses

thousand thousand Wages and salaries Diverse social security payments and pension expenses Total 27,983 4,875 32,858 30,812 5,796 36,608
Average number of employees Germany Other countries Total

622 964

514 1,059

Other operating expenses

thousand thousand Operations Administration Sales Other Total 7,991 6,931 29,811 4,886 49,619 8,328 7,812 37,101 2,682 55,923
Other operating expenses include expenses for postage of goods, guarantees and customer services, impairment, advertising and product design. Expenses for the impairment of trade receivables amounts to 3,392 thousand (previous year: 2,532 thousand). Due to the short-term nature of the item trade receivables and the short-term expectation of payment receipts, the interest effect in calculating impairments is insignificant.

Net financial income

thousand thousand Interest income thereof from hedges Interest expense thereof from hedges Gain/loss from currency conversion thereof from hedges Impairment of financial assets Net financial income -3,460 -156 -1 -2,104 -3,316 -3 -19 --2,732
Net financial income also includes valuation income from derivatives for which hedge accounting is not applied, and for ineffective parts of changes to values of hedging instruments designated in hedge accounting.

Income tax

thousand thousand Actual tax expense Deferred taxes Total 8,050 -1,423 6,627 5,6,338
Losses carried forwards which are expected to be recoverable in future are recognised. In valuing a recognised asset for future tax relief, the probability of recovery of anticipated tax amounts is taken into account. Deferred taxes on changes to present value of cash flow hedges amounting to 801 thousand (previous year: 554 thousand) are recognised directly in equity.
The reconciliation of the income tax amount with the theoretical amount which would have been applicable if the relevant tax rate in the companys country of domicile had been applied is as follows:

100.0 100.0 85.0 96.0 90.0 100.0 100.0
IFRS equity to 31 December 2007 thousand
5,422 1,6,118 -387 -26 1,213 1,988 1,415 500

indirect %

76.0 50.7 76.0
Statement of responsibility
To the best of our knowledge, and in accordance with the applicable reporting principles for financial reporting, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the management report of the group includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal opportunities and risks associated with the expected development of the group for the remaining months of the financial year.

Company bodies

The Board of Directors of Hans Einhell AG in the financial year 2007 was: Andreas Kroiss, Linz/Austria (Chairman) Sales and international expansion Jan Teichert, Metten Finance Dr. Markus Thannhuber, Landau/Isar Technology and development York Boeder, Landau/Isar (since 1 January 2008) International
The Supervisory Board of Hans Einhell AG was composed as follows: Josef Thannhuber, Landau/Isar (Chairman) Businessman Professor Dieter Spath, Sasbachwalden (Deputy Chairman) Director Frauenhofer-Institut fr Arbeitswirtschaft und Organisation (IAO), Stuttgart Heribert Lukas, Wallersdorf-Haidlfing Employee representative workers council
Professor Dieter Spath is a member of the following Supervisory Boards and Management Boards: Christophsbad GmbH und Co., Gppingen, Member of Management Board LIEBICH & PARTNER Management- und Personalberatung AG, Baden-Baden, Chairman of Supervisory Board Zeppelin GmbH, Garching, Member of Supervisory Board ict Innovative Communication Technologies AG, Kohlberg, Deputy Chairman of Supervisory Board (since 7 February 2007)
Landau/Isar, 25 March 2008
Hans Einhell AG The Board of Directors

Andreas Kroiss

Jan Teichert

Dr. Markus Thannhuber

York Boeder
Hans Einhell AG Group, Landau / Isar Statement of non-current assets in financial year 2007

1.1.2007 I. Intangible assets 1. Franchises, development costs, trademarks, patents and licences and similar rights and values 2. Goodwill 3. Prepayments on intangible assets

Additions

Additions/dispos als in consolidated group of companies
Acquisition or production cost
Reclassification Disposals

Currency differences

31.12.2007
12.139.054,75 4.314.380,53 0,00 16.453.435,28
2.030.874,83 5.332.319,05 43.901,43 7.407.095,31
72.479,60 0,00 0,00 72.479,60
4.137.516,31 0,00 0,00 4.137.516,31

0,00 0,00 0,00 0,00

-7.925,38 10.096.967,49 0,00 9.646.699,58 0,00 43.901,43 -7.925,38 19.787.568,50
Property, plant and equipment 1. Land, leasehold rights and buildings, including buildings on non-owned land 2. Technical equipment, plant and machinery 3. Other equipment, fixtures and fittings and equipment 4. Prepayments and plant and machinery under construction
23.990.202,14 2.267.049,61 9.015.235,04 66.088,66 35.338.575,45
2.703.389,88 83.012,45 1.404.428,46 5.351,71 4.196.182,50
0,00 0,00 324.574,50 0,00 324.574,50
0,00 0,00 413.689,52 0,00 413.689,52
-48.559,59 -131.355,96 248.133,33 -68.217,78 0,00
143.130,21 26.788.162,64 -11.033,13 2.207.672,97 -57.109,62 10.521.572,19 2.129,12 5.351,71 77.116,58 39.522.759,51
III. Non-current financial assets Security investments
957.554,18 22.514,80 52.749.564,91 11.625.792,61

0,00 397.054,10

0,00 4.551.205,83

0,00 0,00

0,00 980.068,98 69.191,20 60.290.396,99

1.1.2007

Additions/dispos als in consolidated Depreciation in group of companies financial year

Depreciation

Carrying amounts

Disposals

31.12.2006
8.758.699,42 2.098.287,11 0,00 10.856.986,53
2.402.239,45 0,00 0,00 2.402.239,45
29.018,04 0,00 0,00 29.018,04
4.136.754,13 0,00 0,00 4.136.754,13
-6.290,05 0,00 0,00 -6.290,05
7.046.912,73 3.050.054,76 2.098.287,11 7.548.412,47 0,00 43.901,43 9.145.199,84 10.642.368,66
3.380.355,33 2.216.093,42 0,00 5.596.448,75
12.925.044,78 1.785.775,41 6.093.781,31 0,00 20.804.601,50
879.683,32 75.074,05 1.175.105,91 0,00 2.129.863,28
0,00 0,00 76.689,76 0,00 76.689,76
0,00 0,00 215.418,70 0,00 215.418,70
630,68 13.805.358,78 12.982.803,86 11.065.157,36 -7.665,86 1.853.183,60 354.489,37 481.274,20 -25.144,89 7.105.013,39 3.416.558,80 2.921.453,73
0,00 0,00 5.351,71 66.088,66 -32.180,07 22.763.555,77 16.759.203,74 14.533.973,95

2.548,03 31.664.136,06

1.297,00 4.533.399,73

0,00 105.707,80

0,00 4.352.172,83
0,00 3.845,03 976.223,95 955.006,15 -38.470,12 31.912.600,64 28.377.796,35 21.085.428,85

Anlage 1 zum Anhang

Hans Einhell AG Group, Landau a. d. Isar Statement of non-current assets in financial year 2006

The economic growth in Poland has stabilized on a high level in 2007. This means a growth of the gross domestic product by approximately 6.6 %, which is based on the consumption and investments. In the medium-term, this growth will slow down though, because the domestic demand is higher than the current production capacities. The Polish National Bank has reacted to the inflation peril with a raise of the interest rates, and so the inflation rate levels itself off in an annual average of 2.5 %. In the industry as well as in the building sector the companies complain about labour shortages and strong wage pressure. At times, the average wages rose by double-digit numbers. The unemployment figures declined to under 10.0 %. Up to the parliamentary elections in October 2007, the urgently necessary reforms of the basic economic conditions failed to appear. What the new government - it is considered to be liberal concerning the economy - will be able to achieve, remains to be seen. The Italian economy did not develop as positively as anticipated in 2007. An actual growth of the gross domestic product by approximately 1.7 % could be achieved. Reasons for that are the financial crisis, the high rate of the Euro as opposed to the US-dollar, and the cyclical slowdown of the Global Economy. The foreign trade contributes to this roughly a quarter. The aggregate debt remains with almost 104 % of the gross domestic product the highest in the whole Euro zone. Since the foundation of the Democratic Party (PD) by Autumn 2007, radical cuts of government aids for companies, an abatement of tax rates, and new possibilities for depreciation for investments in research and development are expected. The Austrian gross domestic product achieved an increase by 3.3 % in the year 2007. Due to rising food and oil prices an increase of the inflation rate by approximately 2.1 % ensued, whereat even in Austria the mark of 3.0 % has been passed in November. The unemployment figures are declining since 2005 and amount to 6.3 % according to national definition. Moreover, these figures profit from the employment of new full-time jobholders. In spite of this development, the private consumption appeared to be muted at a rate of 1.6 %. Additionally intensified by high spendable household incomes the savings ratio increases since 2002. For the year 2008, a moderate rise of the gross domestic product of about 2.4 % has been predicted. Furthermore, a rising inflation rate is expected, causing a decline in private consumption. The economic growth in Romania slowed down in 2007 to a rate of 5.8 %. A crucial damper was the lasting drought und the resulting decline of the agricultural production, which had negative effects on the domestic economy as well as on the export performance. On the other hand, the building industry, which reported a record year and the services sector acted furthering. Due to the rising prices of food the inflation rate amounted to 4.3 %. This fact, but also the fast rising wages and salaries and the huge current account deficit cast some doubt on the ability of the government to conduct necessary reforms. The market receptiveness for goods and services on the other hand is beneficial to foreign investors. This became apparent in the private consumption, which amounted to 11.0 % in 2007. Accordingly, imports increase with 26.0 % twice as fast as the exports.

Financial Position

Financing The projected growth of the Einhell Group requires a sound financial structure. The group is able to produce this strong net equity base, consequently the foundations for the projected sales growth and potential additional purchases of shares are at hand. The Einhell Group has been financed dominantly by long-term loans again in the business year 2007. Beside the classic long-term bank loans this includes the bonded loan issued in the business year 2004. The most important liquidity, balancing, and P&L key figures have been maintained or even improved in 2007. The financing of the group is handled by the parent company. In order to minimize currency exchange risks, it was effected mainly in Euro. The Einhell Group does not expect any difficulties meeting its repayment obligations according to the loan agreements.
The cashflow from financing activities amounted to -2.0 million (previous year: -3.2 million). Particularly relevant were the increase of the repayment obligations and the dividend payment. On December 31, 2007, the balance sheet total amounted to 231.9 million (previous year: 200.6 million). The equity ratio added up to 48.2 % (previous year: 49.3 %) on effective date. Procurement Due to the procurement of Einhell's products being effected via production sites in China, the focus was once more on the development of the Chinese Renminbi in the business year 2007. Since the easing of the bond with the US-dollar in July 2005 it has gained against the US-dollar by approx. 9 %. Caused by the strong Euro, Europeans may as yet import on good terms, on the whole though, Chinese goods will become more expensive on the global market. As the procurement of the Einhell Group is effected in US-dollar, all of these developments will be monitored and continued to be taken into consideration in planning the procurement promptly und flexibly. Another crucial factor are the commodity prices on the overall global market. The growing demand of the previous years originating from the Chinese market results in a shortage of raw materials and consequently in rising prices. These affect various metals, crude oil, and consequently synthetic materials. The necessary rise in product prices afflict the entire global market and thus will concern every company dependent on raw materials. A large part of Einhell's product range is currently produced in China. The quality requirements demanded by the Einhell Group from the Chinese suppliers are determined by the customers' wishes. The quality assurance and quality management are improved constantly. Since high priority is given to the quality inspection before the shipping from China, this domain is constantly under surveillance. Currently, 58 employees are engaged in this area. Aside from the tight shipping inspections on location, monitoring of the compliance with customer-specific quality requirements, inspections of production in progress, and improvement of procedures on the manufacturer's side are also effected. The quality of the suppliers is improved constantly. Dependency on individual suppliers is avoided by an adequate number of suppliers and a broad distribution of orders.

Research and Development

The expenses for research and development increased in the business year 2007 from 2.5 million to 3.2 million. The research and development division is based predominantly in the parent company. In this division, 34 staff members are employed. These employees attach importance not only to collaboration with other divisions, like the quality management for example, but also to the communication with customers. In this manner, customer needs are included from the start in the development of new products or product versions. The customer is regarded as partner. This ensures a consistent adjustment to the market for the entire Einhell Group. This is also the way it became one of the fastest acting companies in the industry. The positive experiences with our customers encourage us to maintain this course. The business objective of differentiation from competitive products played a special role in the business year 2007. The examination of the product colors and the closely linked divisions brand portfolio and package design in the third quarter of 2006 has initiated two new product lines. They shall gradually replace the existing lines and consequently bring about a coordinated appearance of the Einhell brand on the market. This decision has been necessary, because the present Einhell products show a diffusely differentiated portfolio to the end customer. The two new product lines will differ in prices and design. The line Blue shall designate the low price segment and the line Red the upper price segment. Here, too, the prices will remain below those of the current reference market makers, but the products will distinguish themselves decidedly by means of design, exclusiveness, and customer service. Along with the desired effects on the side of the customer this introduction will increase the efficiency of logistics and distribution. The market introduction of both lines will be made step by step, starting early in 2008. The Einhell Group possesses a portfolio of various German and European patents, utility models, registered designs, and brands. The company strategy considers it an essential task to extend the number of patent applications notably.
Main Features of the Company's Compensation System
The members of the management board especially receive compensation bound to the business success of short-term as well as long-term nature. The members of the management board hold shares of the Hans Einhell AG. Share option plans or comparable arrangements do not exist. For further details we would like to refer to the particulars in the IFRS-explanatory notes to the consolidated financial statement.

Procurement Risks Procurement is a primary process in the business model of the trade and accordingly constitutes an important part in the risk management of the Einhell Group. The objective of the procurement is to purchase products in due time with appropriate quality at a fair price. A crucial factor in this are the suppliers. Since the Einhell Group already maintains long standing relations with its suppliers, price and procurement risks can be minimized. By means of constant inspections, the suppliers are included into the quality assurance system of the Einhell Group. A dependency of the Einhell Group on individual suppliers does not exist. To optimize the procurement planning, the purchase quantities are arranged with the distribution on a bi-weekly basis. The risk of currency fluctuations during procurement is handled, if possible, by hedging activities in the form of futures and options dealing. Currency hedging is made according to the IAS/IFRS directions for hedge accounting for the individual hedge periods. Sales Market Risks The Einhell Group considers loss of receivables and the sales volume to hold the main risks at the sales market. The Einhell Group counters the credit risk by effecting Euler-Hermes credit insurance. The risk of a decline of the sales volume is minimized by innovative products, which meet the customers' demands in design, functionality, and price-performance ratio. By means of market analysis, the inconsistent brand profile has been identified. This risk will be countered by the step by step introduction of two clearly defined product lines. In this way, the Einhell Group manages to increase its sales volume and to gain additional market shares even in economically difficult times. Financial Risks The continuous growth rate of the Einhell Group certainly involves risks in connection with financing. In order to cope with the financial risks, the Einhell Group relies on both long-term and short-term financial strategies. The domain of long-term financing consists of long-term bank loans and the bonded loan issued in 2004. In the short-term domain, the Einhell Group has at its disposal mainly classical credit lines, which have been used only partly in the business year 2007. Both the endowment with liquid funds and with equity capital has been excellent in the reporting year. Risks in connection with changes and fluctuations of interest rates are managed by the application of derivative financial instruments like long-term interest rate swap and interest cap agreements.

Risks of Expansion Risks result as well from acquisitions of the Einhell Group. These risks are sought to be reduced by the fact that the acquisition candidates are mostly long standing partners of the Einhell Group. By that means, the integration of the new affiliates into the structure and strategies of the Group is achieved right from the start. In addition to that, due diligence reviews are effected in the companies due to acquisition, which are conducted by internal employees of the subsidiary controlling, supported by external consultants. Liability Risks Liability risks arise for the Einhell Group mainly in connection with product liability. The procurement market for Einhell products is the People's Republic of China. To assure the quality on location, a quality assurance system has been established in China, which directly monitors the supplier's production and issues corresponding product briefing. The remaining risk concerning claims from product liability has been covered economically reasonable with appropriate insurances. As in the previous year, no cases of product liability worth mentioning have occurred in the reporting year.
Declaration concerning Corporate Governance
The Corporate Governance Code designed by a German governmental commission shall contribute to making the legally effective regulations concerning corporate governance and controlling in Germany transparent for national and international investors. By the voluntary issue of a corporate governance declaration, the Hans Einhell AG has committed to assure a responsible management and control of the group, concentrating on sustainable value added. By means of this declaration, the Hans Einhell AG creates transparency about the legal and company specific general conditions and advances the trust of its national and international investors, its business associates and employees, as well as of the general public. In this sense, the principles of the Einhell Group govern the relations to its shareholders and the social and political environment of the company, the efficient co-operation between board of directors and supervisory board, as well as the transparency and accounting requirements.
The Hans Einhell AG regularly reviews its Corporate Governance Declaration regarding new experiences and legal requirements, as well as advanced national and international standards and adjusts it if necessary. The declaration may be consulted on the website of the Hans Einhell AG (www.einhell.com).

Forecast

Global Economic Development For the global economic condition of 2008 a minor decline of the growth rates has been predicted. With an increase of the gross domestic product calculated at market exchange rates of 3.3 % though, one cannot speak of a worldwide setback in economic activity. In this respect the Asian countries, especially China play their part as motor of the economic activity. The developing and newly industrialized countries contribute with 48 % nearly half of the gross domestic product. Another positive influence on the development are the lowered prime rates, caused by the financial market crisis. They allow for the provision of additional liquidity. Yet, a negative influence for the development of global economy is the still important status of the United States. With a declining potential growth again in 2008, negative effects on the foreign economic situation ensue, because the exports to the USA will decline. The global monetary value will remain stable in 2008, in spite of a rise in energy prices. It is projected for the oil price to stabilize around a value of 80 US-dollar per barrel in 2008. The forecast for the growth of the gross domestic product of the European Union amounts to 2.3 %. In the Euro zone the growth forecast turns out only insignificantly lower. This is attributed to the encumbering factor foreign trade, caused by the strong Euro. Motor of the growth are nevertheless the revival of the private consumption, the decline of unemployment, and increasing nominal incomes. With 2.1 %, the inflation rate will also remain nearly unchanged compared to the year 2007. These positive expectations are based on a high level of the indicator of consumer confidence. In the Middle and Eastern European member states of the European Union a monetary streamlining is likely in the year 2008. Reasons for this are the high capacity utilization and the low unemployment rates. The growth rates of the gross domestic product are estimated to be 5.2 % and are thus nearly one percentage point lower than the figures of the previous year. The economic slowdown in the United Kingdom and the Scandinavian member states will turn out comparatively low.
The Federal Republic of Germany will also have to face a limited economic growth. This is due to the dependency on the development of the sales markets, as the exports are of major significance for the German economy. The growth of the gross domestic product will decline accordingly by about seven basis points to 1.9 %. The contribution of the foreign trade will decline in 2008 to 0.2 %. The growth will largely be supported by the private consumption, because it will not be dampened any longer by measures of the fiscal policy as in 2007 and the gross wages and salaries will also rise. In the customer domain gainful employment is an important factor and in this respect positive signs continue to be perceived. Thus the unemployment rate shall decline to 8.3 %. The public budgets will also profit from this. The budgets will be able to present a small surplus predominantly due to income tax and social security increments. The forward volume caused by the lowering of the corporate tax in the year 2008 amounts to approximately 4 billion and thus these investments are missing in the first quarter of 2008. The effect of the declining investment market caused by rising costs of capital in the course of the business tax reform will not occur to a great extent until 2009, with the introduction of the withholding tax on dividends and capital gains. The inflation rate will amount to an annual average of 2.0 %, consequently the currency stability will not be endangered. In 2008, customers will recover from the negative consequences of the value-added tax increase. The consequent increase of private consumption has positive effects on the retail industry. The DIY-market will also profit from these effects. The DIY-market sector presumes growth potential particularly in the categories energy conservation, safety, and refurbishment. The specific addressing of individual target groups is also very important to the retail industry. Objectives of the Einhell Group for 2008 Among the objectives for the business year 2007 were the differentiation from competitive products, the improvement of quality and customer service, and the further organic growth. The achievement of all those objectives brought about a further sales growth. To ensure a long standing existence of the Einhell Group, ambitious business objectives have to be achieved in the following years. The Einhell Group has set itself three main objectives for 2008. For 2008, the management board and the executive staff have set themselves the paramount business objective to improve the quality in order to enhance customer satisfaction. Therefore, in the quality assurance division high investments into the sectors personnel, development of new systems, and optimization of established systems shall be made. Another objective is to significantly reduce the failure rates compared to the years 2006 and 2007.

Yet another objective is the formation of new affiliates. The focus is on foreign companies here. These already contributed a large part to the sales growth in the previous year. Especially Eastern Europe offers potential in this respect. Already in 2007 new companies have been bought in the Czech Republic and Turkey. Moreover, the newly founded affiliates in Greece and Chile shall be built up. Further foundations and acquisitions of affiliates are intended in 2008. The improvement of service is the third main objective. The iSC GmbH is developing for this purpose an international service-concept. It will be introduced in some affiliates already in 2008 by means of the establishment of the necessary infrastructure. The management board assumes that the segments Tools and Garden & Leisure will develop positively in the following years. Particularly due to the development of the new product lines, Einhell products address the customer consistently. For the business year 2008 a revenue of between 400 million and 420 million is targeted. In the business year 2009 the management board intends to increase the revenue with a constant rate of return, like it did in the past. Strategically, the Einhell Group will increasingly sharpen its profile as manufacturer of power and gardening tools over the next years. Irreversibly connected with this strategy is the objective to concentrate on core products and core target groups as well as to be listed with every international DIY-market chain as the highest-performing supplier in the following years. In addition, the step by step introduction of the product lines Blue and Red shall improve the brand presence and recognition value. Over the next years, the Einhell Group shall become the most innovative and the fastest supplier of the industry regarding gardening and power tools.
Proposal on the Allocation of the Unappropriated Profits The management board and the board of directors of the Hans Einhell AG propose to the general meeting on June 20, 2008 to effect a distribution of 3,271,296.00 from the balance sheet profit of the Hans Einhell AG according to the German Comercial Code (HGB) in the amount of 10,302,855.12. This corresponds to a dividend of 0.90 per preference share and 0.84 per ordinary share. The remaining amount of 7,031,559.12 shall be carried forward.
Landau a. d. Isar, 25 March 2008
Independent Auditors Report
We have audited the consolidated financial statements prepared by Hans Einhell AG, Landau a. d. Isar, comprising the balance sheet, the statements of income, the changes in equity, the statements of cash flow and the notes to the consolidated financial statements, together with the group management report for the business year from January 1, 2007 to December 31, 2007. The preparation of the consolidated financial statements and the group management report in accordance with IFRS, as adopted by the EU, and the additional requirements of German commercial law pursuant to 315a Abs. 1 HGB are the responsibility of the Managing Board of the Company. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit. We conducted our audit of the consolidated financial statements in accordance with 317 HGB (Handelsgesetzbuch German Commercial Code) and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprfer (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the Managing Board, as well as evaluating the overall presentation of the consolidated financial statements and group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRS, as adopted by the EU, the additional requirements of German commercial law pursuant to 315a Abs. 1 HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Groups position and suitably presents the opportunities and risks of future development.