Retail. is our business

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A N N U A L R E P O R T

2 0 0 6

Re

ta

il

is our

business

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Macintosh Retail Group NV

Parkweg 20, 6212 XN Maastricht - P.O.box 5770, 6202 MH Maastricht, The Netherlands

Macintosh Retail Group is a large-scale non-food retailer specialising in the distribution of consumer products in the Benelux and surrounding countries. Our retail chains target a broad range of consumers in the Living, Fashion and Automotive & Telecom market sectors, where they are among the leaders. The customer is key to everything that more than 9,600 employees believe in and do. Our retail formats present an up-to-date and attractively-priced range of products and a constant flow of interesting special offers, thus ensuring complete customer satisfaction and encouraging customers to revisit our stores. Every year some 160 million consumers visit our stores, while approximately 40 million visit our websites.

Moreover, Macintosh Retail Group’s strength is to leverage its non-food retail expertise aimed at economies of scale, increasing profitability and cost leadership. This is partly facilitated by back-office facilities, including excellent systems, in a decentrally organised group of companies.

At the beginning of 2007, Macintosh Retail Group operated 961 stores in the Netherlands, Belgium, France and Germany, with a total retail floor space of 525,000 m2_{. The majority of the stores are located in town centres, with Kwantum and GP Décors, in}

particular, occupying 150 stores at shopping centres on the outskirts of towns. Through its subsidiary Macintosh Hong Kong, Macintosh Retail Group has direct purchasing facilities for supplies made from countries in the Far East.

In the Living sector, Kwantum offers the best deals in home furnishings and home decoration with 98 stores in the Netherlands and Belgium. With 52 stores in France, GP Décors is a comprehensive supplier of home decoration at attractive prices.

The Fashion sector comprises 447 Scapino, Dolcis, Manfield, Invito and PRO sport shoe stores in the Netherlands and Belgium, selling mainly shoes, but also shoe accessories, bags, clothing and sporting goods. The stores offer a range of products in every price category, matching any style, taste and age.

In the Automotive & Telecom sector, BelCompany is the largest supplier of mobile telecom products and services in the Netherlands with 156 stores and one of the largest independent telecom retailers in Belgium with 56 stores. With 152 stores in the Netherlands and Belgium, Halfords is the specialist for bicycles, car and bicycle accessories, and mobile navigation equipment.

In 2006, Macintosh Retail Group achieved consumer retail sales of more than € 1.1 billion, of which approximately 90% was generated in the Netherlands and the remainder in Belgium, France and Germany.

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This annual report contains a number of forward-looking statements and expectations. These statements, which can be reflected in a number of different ways, refer to future events. They are based on current expectations, estimates and forecasts made by the management of Macintosh Retail Group, as well as on information currently available to the group. These expectations and forecasts are subject to change and Macintosh Retail Group’s actual results may differ substantially from expectations as described in this annual report, due to potential risks, uncertainties and other significant factors which Macintosh Retail Group is not always able to control and which are neither manageable nor predictable. In the light of these risks, uncertainties and assumptions, there is even a possibility that the future events described in the annual report will not actually take place. Macintosh Retail Group cannot therefore guarantee that the expectations expressed in this annual report will be realised.

These factors, risks and uncertainties include the following non-exhaustive list: Changes in economic and commercial circumstances, changing consumer preferences, introductions of new retail formats or concepts, products and services, government policy in general and amendments to legislation and regulations in particular, changing competition in the markets in which Macintosh Retail Group operates, financing of the business activities, efficiency and cost control, exchange rate changes, interest rate fluctuations, uncertain polit-ical situations, tax rates, acquisitions, joint ventures and disposals. For further details of risks, uncertainties and other factors which may affect the results, performance or success of Macintosh Retail Group, reference is made to pages 35 to 38 of this annual report.

The statements made in this annual report reflect the situation as at March 13, 2007 and Macintosh Retail Group accepts no obligation to update the statements or publish any changes, due to new information becoming available, future events or any other factors, unless it is obliged to do so under imperative rules of governing law. For additional information

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(Amounts in € millions) 22000066 2005 T

Tuurrnnoovveerr,, rreessuulltt,, ccaasshh ffllooww aanndd ccaappiittaall eexxppeennddiittuurree

Consumer retail sales, incl. franchisees 11,,117744..99 979.6

Net turnover 998833..88 817.6

Net turnover on continuing operations1 ₉₉₁₁₄_4..5₅ _713.0

EBITDA 8899..11 63.3

EBITDA on continuing operations1 ₈₈₅_5..2₂ _55.1

Operating result (EBIT) 6677..11 45.9

Operating result (EBIT) on continuing operations1 ₆₆₄_4..7₇ _39.1

Net profit 4466..00 32.9

Net profit on continuing operations1 ₄₄₂_2..2₂ _28.2

Depreciation 2222,,00 17.4

Depreciation of continuing operations1 ₂₂₀_0..5₅ _15.9

Cash flow 6688..00 50.3

Cash flow on continuing operations1 ₆₆₂_2..7₇ _44.1

Capital expenditure 7700..44 22.6

Capital expenditure on continuing operations1 ₂₂₂_2..6₆ _21.9

E

Eqquuiittyy aanndd lliiaabbiilliittiieess

Balance sheet total 446644..88 269.3

Average net capital employed 331133..11 177.6

Shareholders’ equity 116699..22 139.7

N

Neett ccaasshh ffllooww - Continuing operations:

From operating activities 7744..00 48.6

Used in investing activities -- 115599..55 - 21.7

From/used in financing activities 7700..00 - 9.5

- Total cash inflow from operations to be discontinued 22..33 12.7

R Raattiiooss

Net turnover, % change on previous year ++ 2200..33 + 1.5

Net turnover on continuing operations1

% change on previous year ++ 2288..33 + 5.0

Operating result as a % of turnover (EBIT margin) 66..88 5.6

Operating result on continuing operations as

a % of turnover (EBIT margin) 77..11 5.5

Return on net capital employed (ROCE, %) 2211..44 25.8

ROCE on continuing operations1 ₂₂₂_2..3₃ _24.6

Tax burden (%) 2233..88 24.7

Net profit as a % of turnover 44..77 4.0

Shareholders’ equity as a % of balance sheet total 3366..44 51.9

Interest Coverage ratio 1100..00 16.9

Net debt/EBITDA ratio 11..11 < 0

E

Emmppllooyyeeeess

The Netherlands 88,,993333 6,171

Other countries 669944 435

Total 99,,662277 6,606

Average full-time equivalents 55,,447700 4,609

S

Sttoorree iinnffoorrmmaattiioonn

Number of stores in the Netherlands 881144 603

Number of stores in other countries 115599 118

Total number of stores 997733 721

Retail floor space (m2₎ ₆₆₀₀₀_0,,5₅₀₀₀₀ _442,000

1 All activities excluding the furniture activities in 2006 and 2005 and excluding Superconfex in 2005.

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KEY FIGURES 3

D a t a p e r s h a r e

1 € 36 32 28 24 20 16 12 8 4 0 2004 2005 2006 2007

Share prices from 2004 until februari 2007

x €

2002 2003 2004 2005 2006

Shareholders’ equity per share 9 8 7 6 5 4 3 2 1 0 x 1000 2025 1800 1575 1350 1125 900 675 450 225 0 2007 2006 J F M A M J J A S O N D J F (Amounts in € millions) 22000066 2005 Net profit2 ₂_2..1₁₁₁ _1.50 Cash flow2 ₃_3..1₁₂₂ _2.29 Dividend 00..8833 0.60 Shareholders’ equity 77..6600 6.27 Highest price 3311..6655 14.83 Lowest price 1144..2288 8.00 Year-end price 2255..5500 14.67

Year-end market value in € millions 556677..88 326.6

R Raattiiooss

Dividend yield as a % of highest/lowest/year-end price 22..66//55..88//33..33 4.0/7.5/4.1

Pay-out as a % of net profit 4400..22 40.7

Highest/lowest price to net profit 1155..00//66..88 9.9/5.3

Highest/lowest price to cash flow 1100..11//44..66 6.5/3.5

S

Sttoocckk eexxcchhaannggee ppeerrffoorrmmaannccee

Number of shares outstanding at year-end3 ₂₂₂_2,,2₂₆₆₈_8,,1₁₁₁₈₈ _22,268,118

Issued and paid-up share capital (in €) 88,,990077,,224477 8,907,247

Weighted average number of shares outstanding 2211,,776699,,999944 21,950,952

Number of shares annual trading volume4 ₁₁₄_4,,1₁₇₇₂_2,,4₄₃₃₅₅ _8,935,113

Shares annual trading volume in value terms (€ millions)4 ₃₃₃₃₈_8..5₅ _99.16

Number of shares average daily trading volume4 ₅₅₅_5,,5₅₇₇₈₈ _34,767

Shares average daily trading volume in value terms (€ millions)4 ₁_1..3₃₃₃ _0.39

Number of transactions4 ₃₃₄_4,,3₃₁₁₉₉ _4,469

1 Following the share split on May 10, 2006, with one existing share being converted into three new shares.

2 Calculated on the basis of the weighted average number of shares outstanding, excluding treasury shares repurchased. Earnings per share on a fully diluted basis amounted to € 2.08 for 2006 and € 1.47 for 2005.

3 Including 754,422 treasury shares repurchased (2005: 737,922). 4 Excluding possible transactions conducted off the Euronext stock exchange.

2002 2005 2006

Net profit per share Cash dividend per share 2.25 2.00 2.75 1.50 1.25 1.00 0.75 0.50 0.25 0 x € 2003 2004

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It goes without saying that we will continue to further strengthen our successful retail formats in the Netherlands in 2007, by investing in existing as well as new stores. In addition, much attention will be devoted to our retail chains in other countries, as well as to our active quest for suitable candidates for acquisition.

We have confidence in 2007, but believe it is too early to make any forecast now about the development of operating result and net profit on continuing operations in 2007.

Maastricht, the Netherlands, March 13, 2007 T

Too oouurr sshhaarreehhoollddeerrss,,

We look back on 2006 with satisfaction, as we made signif-icant steps in terms of growth and increased profitability. The continuing improvements in the non-food retail market resulted in an increase in turnover of 20.3% to € 983.8 million. This was due to the acquisition of shoe discounter Scapino, higher turnover from existing stores and the addition of 36 new stores on balance. With Scapino, Macintosh Retail Group acquired early 2006 a retail format that had been successful for many years and offers further growth potential. The acquisition fits our growth strategy defined in 2003 and contributed considerably to the increase in operating result in 2006. The total operating result increased by 46.3% to € 67.1 million. The existing activities reported an increase in profitability, too. These developments led to a net profit of € 46.0 million, a 40.0% rise on last year.

It will be proposed to distribute a dividend of € 0.83 per share, representing a pay-out of 40.2% and a 38.3% increase compared with 2005.

The performance of a retailer depends largely on the quality and commitment of the people it employs. The Managing Board would like to express its appreciation to all employees contributing to the excellent performance in 2006 and working very hard each day to ensure that consumers found their way to our stores once again in 2006.

After Stoutenbeek/Pot’s store in Axel had been sold in early 2006, agreement was reached at the end of that year on the sale of the furniture activities of Piet Klerkx and Stoutenbeek as at January 1, 2007. The sale has since been effected. We would like to thank the employees of these companies for their highly valued dedication and wish them every success with their new owners. The sale fulfilled our goal of refocusing on home decoration in particular in the Living sector.

In order to enhance the marketability of the Macintosh Retail Group NV share, a share split in the ratio of three new shares for one existing share was effected on May 10, 2006. The share price rose from € 14.67 at the end of 2005 to € 25.50 at year-end 2006 (+ 74%).

F r o m t h e M a n a g i n g B o a r d

M.S.J.H. (Stef) Stevens (CFO)

L.J.J.M. (Lambert) van de Wiel (COO) F.K. (Frank) De Moor (CEO)

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REPORT OF THE MANAGING BOARD/DEVELOPMENTS

A

Accqquuiissiittiioonn ooff SSccaappiinnoo aanndd ssaallee ooff ffuurrnniittuurree aaccttiivviittiieess Early 2006, agreement was reached on the acquisition of shoe discounter Scapino as at February 1, 2006. Scapino operated 216 stores in the Netherlands (184), Belgium (25) and Germany (7 outlet stores) at the time. Scapino is a long-term profitable company with growth potential, which made a substantial contribution to earnings per share of Macintosh Retail Group in 2006. Scapino’s discount stores and the Dolcis, Manfield, Invito and PRO sport formats, which serve the mid and upper segments of the shoe market, jointly form the largest shoe retailer in the Netherlands, with a market share of approximately 13% in value terms and approximately 17% in volume terms. From the acquisition date, and net of financing charges, Scapino’s contribution to the net profit of Macintosh Retail Group for 2006 amounted to € 9.0 million.

The furniture activities of the Stoutenbeek/Pot store in Axel, were sold as at April 1, 2006. At the end of 2006, agreement was reached on the sale of the Piet Klerkx and Stoutenbeek furniture formats as at January 1, 2007.

S

Sttoorreess aanndd vviissiittoorrss

In 2006, the number of stores engaged in continuing opera-tions increased on balance by 253 to 961. This increase was due to the acquisition of Scapino and the opening of 57 new stores of which the most at BelCompany as well as the closure of 20 stores. The retail floor space of continuing operations increased by 170,000 m2 _{to 524,300 m}2_{, thanks}

mainly to the acquisition of Scapino.

As in previous years, Macintosh Retail Group again invested in the websites of store formats in 2006, resulting in an increase in the number of visits to the websites of more than 30% to

2 0 0 6 : R e c o r d y e a r f o r M a c i n t o s h R e t a i l G r o u p

• Record year for Macintosh Retail Group, with a rise in net profit from € 32.9 million to € 46.0 million (+ 40.0%). • Acquisition of shoe discounter Scapino (216 stores) on February 1, 2006.

• Opening of 57 new stores and closure of 20 stores engaged in continuing operations (year-end 2006 total: 961). • Consumer confidence on the rise. Increase in non-food retail spending in the Netherlands of 6.3%.

• Total turnover of Macintosh Retail Group up by 20.3% to € 983.8 million. Turnover on continuing operations up by 28.3% to € 914.5 million.

• Rise in operating result from € 45.9 million to € 67.1 million (+ 46.3%). Operating result of continuing operations increased by 65.4% from € 39.1 million to € 64.7 million.

• Net profit up 40.0% from € 32.9 million to € 46.0 million; earnings per share up from € 1.50 to € 2.11. • Cash dividend per share from € 0.60 to € 0.83 (+38.3%).

• ROCE of continuing operations from 24.6% to 22.3%.

• Cash flow up to € 68.0 million (2005: € 50.3 million).

• Sale of Piet Klerkx and Stoutenbeek furniture activities as at January 1, 2007.

Consumer confidence index 5 0 15 15 10 10 20 20 -5 -5 -1010 -1515 -20 -20 -25 -25 -30 -30 -35 -35 -40 2005 2006 J F M A M J J A S O N D J F M A M J J A S O N D J F Willingness to buy NL The Netherlands 2007 Belgium France F

Faavvoouurraabbllee mmaarrkkeett ddeevveellooppmmeennttss

Consumer confidence in the Netherlands showed a marked growth as from the last quarter of 2005 and - for the first time in years - the index was positive from June 2006. The upward trend in Belgium and France was more moderate than in the Netherlands in 2006. However, consumer confidence in these countries was already on a higher level in previous years. According to Statistics Netherlands (CBS), the non-food retail market in the Netherlands generated 6.3% higher turnover compared with 2005, mainly thanks to a 5.8% increase in the number of products sold. Based on information available, Belgium and France saw an increase in consumer spending of 3% and 4% respectively for the whole of 2006.

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Turnover by sector was as follows:

(in € millions) TToottaall yyeeaarr FFiirrsstt hhaallff SSeeccoonndd hhaallff

2

2000066 2005 % +/- 22000066 2005 % +/- 22000066 2005 %

+/-Living1 ₂₂₆₆₆_6..1₁ _260.9 _{+ 2.0} ₁₁₃₃₃_3..3₃ _123.5 _{+ 8.0} ₁₁₃₃₂_2..8₈ _137.4 _{- 3.4}

Fashion2 ₃₃₂₂₇_7..4₄ _141.8 _+130.9 ₁₁₄₄₉_9..4₄ _60.4 _+147.1 ₁₁₇₇₈_8..0₀ _81.4 _+118.9

Automotive & Telecom 332211..00 310.3 + 3.5 114499..66 140.6 + 6.4 117711..44 169.7 + 1.0

C Coonnttiinnuuiinngg o oppeerraattiioonnss 991144..55 713.0 ++ 2288..33 443322..33 324.5 ++ 3333..22 484822..22 388.5 ++ 2244..11 Operations to be discontinued3 ₆₆₉_9..3₃ _104.6 _- ₃₃₇_7..7₇ _59.5 _- ₃₃₁_1..6₆ _45.1 -T Toottaall 998833..88 817.6 ++ 2200..33 447700..00 384.0 ++ 2222..44 551133..88 433.6 ++ 1188..55

1 Excluding furniture companies Piet Klerkx and Stoutenbeek in 2006 and 2005. 2 2006: including Scapino (11 months); 2005: excluding Superconfex.

3 Furniture companies Piet Klerkx and Stoutenbeek in 2006 and 2005, and Superconfex in 2005.

million in 2006, a drop of € 7.9 million on 2005, owing mainly to the sale of the Stoutenbeek/Pot store in Axel on April 1, 2006.

some 40 million. This increase has had a positive effect on turnover generated by the stores, thanks to the websites providing information and service to customers, as well as promoting products.

T Tuurrnnoovveerr

Turnover on continuing operations (including Scapino in 2006, but excluding Piet Klerkx and Stoutenbeek in 2005 and 2006) of Macintosh Retail Group rose by 28.3%, from € 713.0 million to € 914.5 million, of which 24.8 percentage point was due to the acquisition of Scapino. Turnover on continuing operations was higher in all sectors, thanks partly to higher sales at existing stores and partly to expansion.

The rise in turnover in the first half of 2006 was higher compared with the second half, bearing in mind, however, that 2005 had witnessed a poor first half and an exceptionally good second half year.

Total turnover of Macintosh Retail Group went up 20.3% in 2006, from € 817.6 million to € 983.8 million. Of total turnover, 89% was generated in the Netherlands (2005: 86%) and 11% in Belgium/France (2005: 14%).

Turnover on continuing operations in the Living sector rose by 2.0%, from € 260.9 million to € 266.1 million, due mainly to a good performance from Kwantum Netherlands. Turnover on continuing operations in the Fashion sector went up from € 141.8 million to € 327.4 million as a result of higher sales at Hoogenbosch and the additional € 177.0 million in turnover fol-lowing the acquisition of Scapino on February 1, 2006. Turnover of the Automotive & Telecom sector rose by 3.5% to € 321.0 million, compared with € 310.3 million in 2005, thanks to increases at both BelCompany and Halfords.

The furniture activities of Piet Klerkx and Stoutenbeek, which were sold as at January 1, 2007, generated turnover of € 69.3

Turnover by sector x € millions Living Fashion Total 900 800 700 600 500 400 300 200 100 0 2002 2003 2004 2005 2006

Automotive & Telecom

Turnover total / Turnover The Netherlands x € millions 900 800 700 600 500 400 300 200 100 0 Total The Netherlands 2002 2003 2004 2005 2006

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REPORT OF THE MANAGING BOARD/DEVELOPMENTS

7 G

Grroossss mmaarrggiinn,, eexxppeennsseess aanndd ooppeerraattiinngg rreessuulltt

The percentual gross margin on continuing operations was up 0.6 percentage points to 42.0%, thanks mainly to the fine-tuning of the promotional and product range policies. At 42.1%, the total percentual gross margin was slightly up on 2005 (42.0%).

Costs as a percentage of turnover on continuing operations were lower at 35.0% compared with 2005 (35.9%), due to strict cost savings at existing operations, as well as the acquisition of Scapino with its relatively low cost level. Total costs as a percentage of turnover were 35.3%, compared with 37.5% in 2005. Both selling expenses and general administrat-ive expenses as a percentage of turnover were lower than in 2005.

The operating result on continuing operations rose by 65.4%, from € 39.1 million to € 64.7 million, thanks mainly to Scapino’s operating result being added, but also to a strong increase at existing operations, particularly at Kwantum Netherlands, Hoogenbosch and Halfords. The operating result on continuing operations as a percentage of turnover (EBIT margin) was 7.1% (2005: 5,5%).

The total operating result rose sharply by 46.3% to € 67.1 million (2005: € 45.9 million).

C

Caasshh ffllooww,, ccaappiittaall eexxppeennddiittuurree,, RROOCCEE aanndd EEBBIITTDDAA Capital expenditure on intangible assets and property, plant and equipment amounted to € 70.4 million in 2006 (2005: € 22.6 million). Of this increase, € 47.5 million was of a tempo-rary nature as a consequence of the repurchase of the real estate of the furniture activities in connection with the sale of Piet Klerkx and Stoutenbeek as at January 1, 2007. Excluding the repurchase, capital expenditure amounted to € 22.9 million (2005: € 22.6 million) of which € 17.4 million was invested in the opening of new stores and the maintenance of existing stores and € 4.9 million was invested in logistics and informa-tion systems.

Total cash flow (net profit plus depreciation) was € 68.0 million in 2006, compared with € 50.3 million in 2005. The cash flow on continuing operations amounted to € 62.7 million in 2006 (2005: € 44.1 million).

The average net capital employed rose from € 177.6 million to € 313.1 million, due mainly to the acquisition of Scapino and the related goodwill and trade name being capitalised as a result (total amount: € 105.7 million). Despite the sharp increase in the operating result, the return on net capital employed (ROCE) on continuing operations fell from 24.6% to 22.3% as a result. Given the current interest rates, ROCE is well above the minimum requirements set by providers of loan and equity, thus adding value for shareholders.

Total EBITDA (operating result plus depreciation) rose from € 63.3 million to € 89.1 million. EBITDA on continuing opera-tions went up from € 55.1 million to € 85.2 million.

Total operating result x € millions 65 60 55 50 45 40 35 30 25 20

Total operating result As a % of turnover 9 % 8 7 6 5 4 3 2 1 0 2002 2003 2004 2005 2006

Operating results by sector were as follows:

(in € millions) TToottaall yyeeaarr FFiirrsstt hhaallff SSeeccoonndd hhaallff

2

2000066 % 2005 % 22000066 % 2005 % 22000066 % 2005 %

turnover turnover turnover turnover turnover turnover

Living1 ₁₁₅_5..3₃ _5.7 _11.6 _4.4 _5..9₅₉ _4.4 _2.9 _2.3 ₉_9..4₄ _7.1 _8.7 _6.3

Fashion2 ₃₃₅_5..7₇ _10.9 _12.6 _8.9 ₁₁₅_5..5₅ _10.4 _2.3 _3.8 ₂₂₀_0..2₂ _11.3 _10.3 _12.7

Automotive & Telecom 2200..11 6.3 20.3 6.5 55..55 3.7 7.4 5.3 1144..66 8.5 12.9 7.6

Other3 _{-- 6}_6..4₄ _- _{- 5.4} _- _{-- 3}_3..3₃ _- _{- 2.9} _- _{-- 3}_3..1₁ _- _{- 2.5} -C Coonnttiinnuuiinngg o oppeerraattiioonnss 6644..77 7.1 39.1 5.5 2233..66 5.5 9.7 3.0 4411..11 8.5 29.4 7.6 Operations to be disontinued4 ₂_2..4₄ _- _6.8 _- ₁_1..1₁ _- _4.5 _- ₁_1..3₃ _- _2.3 -T Toottaall 6677..11 6.8 45.9 5.6 2244..77 5.3 14.2 3.7 4422..44 8.3 31.7 7.3

1 2006 as well as 2005 excluding the furniture companies Piet Klerkx and Stoutenbeek. 2 2006 including Scapino (11 months); 2005 excluding Superconfex.

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Net profit and total dividend x € millions Net profit Total dividend 2006 2004 45 40 35 30 25 20 15 10 5 0 2002 2003 2005 1

1_{From ordinary activities}

Cash flow and capital expenditure x € millions Cash flow Capital expenditure 72 64 56 48 40 32 24 16 8 0 2004 2002 2005 2006 1 2003 1

Excluding the repurchase of real estate of furniture companies. C

Caasshh ffllooww (in € millions) 22000066 2005

C

Coonnttiinnuuiinngg Continuing

T

Toottaall ooppeerraattiioonnss Total operations

Net profit 4466..00 4422..22 32.9 28.2

Depreciation 2222..00 2200..55 17.4 15.9

Cash flow 6688..00 6622..77 50.3 44.1

EBITDA 8899..11 8855..22 63.3 55.1

C

Caappiittaall eexxppeennddiittuurree (in € millions) 22000066 2005

C

Coonnttiinnuuiinngg Continuing

T

Toottaall ooppeerraattiioonnss Total operations

Renovating and fitting out new stores 66..44 66..44 8.6 8.3

Refitting/maintenance

of existing stores 1111..00 1100..88 9.0 8.9

Logistics and information systems 44..99 44..88 3.8 3.6

Other 00..66 00..66 1.2 1.1

Repurchase of real estate

of furniture activities 4477..55 nn..aa.. n.a. n.a.

T

Toottaall 7700..44 2222..66 22.6 21.9

N Neett pprrooffiitt

Net finance costs rose by € 4.6 million to € 6.8 million, owing to the financing of the acquisition of Scapino. At 23.8%, the average effective tax burden was even lower than in 2005 (24.7%), when a one-off tax credit was recorded. The low tax burden in 2006 was mainly thanks to the lower corporate income tax rate in the Netherlands (29.6%, compared with 31.5% in 2005) and a non-recurring release of deferred tax liabilities following a further reduction in the tax rate to 25.5% as at January 1, 2007.

Total net profit amounted to € 46.0 million, a 40.0% increase on 2005 (€ 32.9 million). Earnings per share increased from € 1.50 to € 2.11. Net profit on continuing operations went up

D Diivviiddeenndd

With the approval of the Supervisory Board, the Managing Board has decided to add € 27.5 million of the net profit of € 46.0 million to reserves. It will be proposed to shareholders to distribute a cash dividend of € 0.83 per share for 2006 (2005: € 0.60). This represents a pay-out of 40.2% (2005: 40.7%).

The dividend yield on Macintosh Retail Group NV shares is 2.6%, 5.8% and 3.3%, respectively, of the highest, lowest and year-end prices in 2006.

N

Neett DDeebbtt//EEBBIITTDDAA aanndd IInntteerreesstt CCoovveerraaggee

In 2006, the company took out a new committed credit facili-ty of € 210 million, with a remaining term of four years at this

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REPORT OF THE MANAGING BOARD/DEVELOPMENTS

the existing facilities. In connection with the sale of the furniture activities on January 1, 2007, the real estate of these companies, which had been financed by operating leases, was purchased. This purchase was financed under the terms of the new credit lines. As a result, interest-bearing debt rose by € 146.7 million to € 154.0 million at year-end 2006. Of this amount, € 47.5 million was of a temporary nature relating to the aforementioned purchase of the real estate of the sold furniture activities.

Net Debt/EBITDA (excluding the temporary financing of € 47.5 million) was 1.1 at year-end 2006 (2005: below 0), well below the maximum ratio of 3 set by the lending banks. Interest Coverage ratio was 10.0 as against 16.9 in 2005 where the lending banks set a minimum requirement of 3.

G

Grroouupp bbaallaannccee sshheeeett

The balance sheet total at December 31, 2006 amounted to € 464.8 million (2005: € 269.3 million). The increase was main-ly due to the acquisition of Scapino and the related goodwill (€ 96.9 million) and trade name (€ 8.8 million) being capitalised, as well as to the purchase of the real estate of the furniture companies (€ 47.5 million) related to their sale.

Shareholders’ equity increased by € 29.5 million to € 169.2 million, representing 36.4% of the balance sheet total (2005: € 139.7 million or 51.9%).

The acquisition of Scapino and the temporary financing of the real estate purchased by the furniture activities were the main causes of the rise in interest-bearing debt from € 7.3 million at year-end 2005 to € 154.0 million at year-end 2006.

C

Caasshh ffllooww ssttaatteemmeenntt

Cash flow from operating activities

The increase in cash flow from business operations of € 25.0 million is chiefly due to the rise in profit.

Cash flow from investing activities

The net cash outflow used in investing activities of continuing operations was € 138.0 million higher than last year, due entirely to the acquisition of Scapino. The net cash outflow used in investing activities on operations to be discontinued of € 46.7 million for 2006 related almost in full to the furniture activities’ purchase of real estate.

Cash flow from financing activities

The company recorded a net cash inflow from financing activities of continuing operations of € 69.7 million in 2006. This amount related mainly to the positive balance (€ 94.3 million) of loans taken out (mainly to finance the acquisition of Scapino) and repayments, as well as to dividend payments (- € 13.1 million), repurchasing own shares (- € 7.4 million) and interest paid (- € 5.1 million).

The cash inflow from financing activities of operations to be discontinued of € 48.6 million mainly related to a loan of € 47.5 million for the temporary financing of the purchase of real estate by the furniture activities.

Shareholders’ equity x € millions

Shareholders’ equity As a % of balance sheet total

% 180 160 140 120 100 80 60 40 20 0 90 80 70 60 50 40 30 20 10 0 2002 2003 2004 2005 2006

Changes in cash flows were as follows:

C

Caasshh ffllooww ssttaatteemmeenntt (in € millions) 22000066 2005

Net cash and cash equivalents at January 1 1177..11 - 13.0

Net cash flow from/(used in) of continuing operations:

- Operating activities 7744..00 48.6

- Investing activities -- 115599..22 - 21.2

- Financing activities 6699..77 - 10.0

Total cash flow from operations to be discontinued 22..33 12.7

Change in cash and cash equivalents -- 1133..22 30.1

(12)

• Increase of 7.7% in retail spending in Dutch home furnishing sector according to Statistics Netherlands (CBS) and 4.4% according to Dutch Central Bureau for Home Decoration (CBW).

• Total turnover of Kwantum and GP Décors up 2.0% from € 260.9 million to € 266.1 million, despite number of

stores being down on balance by 8.

• Strong rise in operating result on continuing operations from € 11.6 million to € 15.3 million (+ 31.4%).

• ROCE on continuing operations up from 14.7% to 19.9%.

• Decrease in turnover of Piet Klerkx and Stoutenbeek from € 77.2 million to € 69.3 million, mainly owing to sale of Stoutenbeek/Pot store in Axel as at April 1, 2006.

• Agreement on sale of Piet Klerkx and Stoutenbeek as at January 1, 2007.

L

Liivviinngg sseeccttoorr ffiinnaanncciiaall

Turnover on continuing operations in the Living sector rose by 2.0%, from € 260.9 million to € 266.1 thanks to increases at both Kwantum and GP Décors in France.

The operating result on continuing operations of the Living sector rose strongly from € 11.6 million in 2005 to € 15.3 million in 2006 (+ 31.4%), thanks to an excellent performance from Kwantum Netherlands.

Living

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ROCE for the Living sector (excluding Piet Klerkx and Stoutenbeek) rose from 14.7% to 19.9%, mainly due to a higher operating result.

Turnover on the furniture activities of the Klerkx Groep and Stoutenbeek, which were sold on January 1, 2007, amounted to € 69.3 million in 2006 (2005: € 77.2 million).

(13)

REPORT OF THE MANAGING BOARD/DEVELOPMENTS

11 K

Kwwaannttuumm

Kwantum is the largest and most fairly priced discounter providing furnishing and decoration products for in and around the house in the Benelux. Kwantum’s products and services are accessible to all consumers who require up-to-dateness and are not prepared to compromise on price and quality. Kwantum succeeds in doing so with its keen cost structure and very strong international purchasing position. In addition to providing a standard product range, Kwantum has one-off

special offers and products matching regular theming, thus making home trends available to the widest possible public. In addition, remake services, as well as delivery and furnishing services are an integral part of the product range.

Kwantum has been market leader in curtains, net curtains and wallpaper for many years. In addition, it is one of the top three retailers for carpet and vinyl floor coverings, carpets, lighting, household textiles and home decoration materials, and has a strong share of the market for laminate, cash-and-carry furniture, garden furniture, paint and blinds.

These products are sold in the 98 stores in the Netherlands and Flanders, all of them inviting self-service stores with floor

space of 1,900 m2_{to 2,500 m}2_{in the Netherlands and 800 m}2

to 1,650 m2_{in Flanders with dominant positions in shopping}

centres on the outskirts of towns. All articles can also be

viewed on Kwantum’s websites and ordered on the website of Kwantum Netherlands. This latter option is increasingly being used.

Kwantum’s more than 1,750 employees do everything in their power to continue satisfying the millions of visitors each year.

K

Kwwaannttuumm iinn 22000066

In 2006, the Dutch home furnishing market reported growth for the first time in years, even though CBS and CBW do not see eye to eye in this matter. According to CBS, retail trad-ing sales in the Dutch market for home furnishing as a whole rose by 7.7% in 2006, whereas CBW indicates a 4.4% increase. Turnover of home department stores was up 5.3% according to CBW. Turnover of Kwantum Nether-lands was higher in 2006, thanks to a rise in turnover at comparable stores and despite a fall in the number of stores by 2. Kwantum mainly concentrated on selling home decoration products generat-ing a higher gross margin, instead of on non-branch related products which gener-ate turnover but generally have a lower gross margin. As a result, Kwantum’s principal anchor groups all gained market share. Turnover of Kwantum Belgium declined owing to the closure of 6 stores in Wallonia.

The gross margin as a percent-age of turnover was higher as a result of the fine-tuning of the promotional and product range policies, as well as a lower share of non-branch related products. Total expenses, includ-ing closure costs of the stores in Wallonia, fell, resultinclud-ing in a substantial drop in costs as a percentage of turnover. As a result, Kwantum’s operating result was substantially higher than in 2005.

Owing to the delay in the completion of a number of projects, Kwantum opened only 1 new store, while closing 3 in 2006, bringing the total to 89. Two stores were relocated. Total retail floor space decreased from 210,900 m2 _{to 207,100 m}2_{. The}

total number of stores in Belgium decreased by 6 to 9, with total retail floor space of 9,300 m2_.

In 2006, Kwantum Netherlands’ and Belgium’s websites were entirely restyled to make them even more user friendly.

(14)

on-line sales increasing sharply, sales still being modest in absolute terms, however. Research shows that an increasing percentage of visitors to our physical stores first visited the Kwantum website and spend more in the stores than other customers. The fact that Kwantum communicates its brochures and other advertising via eMail marketing also has a favourable effect on this process.

T

Thhee ffuuttuurree ooff KKwwaannttuumm Kwantum expects to increase the number of stores in the Netherlands by at least 10, bringing the total to 100. Approximately 5 stores will be opened in 2007. Kwantum Belgium will close the remain-ing two stores in Wallonia in 2007. The Managing Board is convinced that Kwantum should be able to be profitable in the Dutch-speaking region of Belgium, based on a retail format used in the Netherlands, and using the knowledge and purchasing and other facilities of Kwantum Netherlands, which now controls all branches in Belgium. The aim is to open some 15 new stores in Flanders in the medium to long term, with 3 expected to be opened in 2007.

G

GPP DDééccoorrss

GP Décors offers its French customers an extensive and profitably priced range of wall-paper, paint, floor covering, fabrics, as well as furniture,

lighting and home accessories. GP Décors provides customised services and the consumer can choose from samples of collections from leading suppliers in addition to the range available in the shop. Customers are advised by expert and professional staff. Delivery and placement as well as furnishing form part of the service. GP Décors has a distinctive position in the French home furnishing market as comprehensive supplier. The stores have a retail floor space

of between 850 m2_{and 1,200 m}2_{and are located preferably}

in the vicinity of hypermarkets on the outskirts of small and medium-sized towns in the north and west of France. The stores are managed by independent entrepreneurs (concessionaires) or store managers employed by the organisation. GP Décors has some 150 employees.

G

GPP DDééccoorrss iinn 22000066

Early 2006, it was decided to slow down the intended expansion of GP Décors and improve the quality of the existing retail network by closing stores whose contribution to turnover was insufficient. Five stores were closed as a result. Three new stores were opened, bringing the total number of stores of GP Décors to 52. Turnover of GP Décors in 2006 grew marginally as a result of higher turnover by comparable stores. The rise was due primarily to a revised communication

strategy including, among other things, a higher advertising frequency. Owing partly to a provision for surplus and obsolete inventories being formed, GP Décors’ operating result decreased and remained negative.

T

Thhee ffuuttuurree ooff GGPP DDééccoorrss

A detailed customer survey at the end of 2006 revealed that a retail format such as GP Décors can be viable in France, provided that the positioning of the formula focuses more on consumers’ feelings about home decoration, and a clearer distinction is made between the GP Décors format and a DIY store. Based on the results of the survey, an existing store was converted to a new format. If the pilot proves successful, this offers opportunities to refit other stores. In the medium to

(15)

REPORT OF THE MANAGING BOARD/DEVELOPMENTS

13 long term, the number of stores could be increased to achieve

the required scale of operations which is necessary to ensure that GP Décors will be profitable in the French home decora-tion market. It is expected that some 60 to 70 stores will be required to achieve that goal. In 2007, attention will be focused primarily on increasing sales and reducing inventories of existing stores. A number of stores with insufficient future potential will be closed.

F

Fuurrnniittuurree aaccttiivviittiieess iinn 22000066

The furniture market in which the Klerkx Group (Piet Klerkx Meubelwereld, Woonexpress and Zitwereld) and Stoutenbeek operate showed a rise in spending in 2006 (4.1% according to CBW). Turnover of home department stores was up 5.3% according to CBW.

In 2006, turnover of the furniture activities fell from € 77.2 million to € 69.3 million, mainly owing to the sale of the Stoutenbeek/Pot store in Axel (with annual turnover of some € 7 million) on April 1, 2006. Despite lower turnover, the operating result of the furniture activities rose, thanks mainly to the favourable effect, on balance, of a number of non-recurring items that partly related to the sale of these activities. At year-end 2006, Piet Klerkx operated 7 stores with S

R

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Coouunnttrriieess NNLL BB FF TToottaall

N

Nuummbbeerr ooff ssttoorreess

-- DDeecceemmbbeerr 3311,, 22000066 8899 99 5522 115500

- December 31, 2005 91 15 54 160

R

Reettaaiill fflloooorr ssppaaccee ((mm22₎₎

-- DDeecceemmbbeerr 3311,, 22000066 220077,,110000 99,,330000 4477,,660000 226644,,000000

- December 31, 2005 210,900 15,700 50,000 276,600

T

Tuurrnnoovveerr,, ooppeerraattiinngg rreessuulltt aanndd RROOCCEE oonn ccoonnttiinnuuiinngg ooppeerraattiioonnss11

(in € millions) 22000066 AAss aa %% ooff ttuurrnnoovveerr 2005 As a % of turnover

T

Tuurrnnoovveerr 226666..11 260.9

O

Oppeerraattiinngg rreessuulltt 1155..33 55..77 11.7 4.4

R

ROOCCEE aass aa %%11 ₁₁₉_9..9₉ _14.7

1 Excluding furniture activities

Living

Stoutenbeek had 5 stores, with total retail floor space of 19,600 m2_{, employing 71 people.}

Following the sale of the Stoutenbeek/Pot store in Axel, agreement was reached at the end of 2006 on the sale of Furniture Holding BV (holding company of Piet Klerkx and Stoutenbeek) as at January 1, 2007. The sale of the furniture activities fits Macintosh Retail Group’s strategy of concentrat-ing on home decoration in the Livconcentrat-ing sector in the future. The gain on the sale of the furniture activities will have a

non-recurring positive effect of more than € 7 million on net profit for 2007.

(16)

• Retail spending in shoe market in the Netherlands down 3.1% (according to the GfK Panel Services) and up 7.7% (according to CBS).

• Acquisition of shoe discounter Scapino as at February 1, 2006.

• Turnover of Hoogenbosch, Scapino and Nea International (‘continuing operations’) up € 185.6 million to € 327.4 million, of which € 177.0 million attributable to the acquisition of Scapino.

• Increase in operating result on continuing operations from € 12.6 million to € 35.7 million, mainly thanks to the acquisition of Scapino and a considerable rise at Hoogenbosch.

• ROCE from 54.9% to 22.7%.

• Number of stores of continuing operations up 226 to 447.

F

Faasshhiioonn sseeccttoorr ffiinnaanncciiaall

Turnover from continuing operations in the Fashion sector rose by € 185.6 million to € 327.4 million (2005: € 141.8 million). This increase was due mainly to the additional turnover of € 177.0 million following the acquisition of Scapino on February 1, 2006 and higher turnover at Hoogenbosch.

The operating result on continuing operations in the Fashion sector grew from € 12.6 million to € 35.7 million, chiefly thanks

Fashion

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wwwww..iinnvviittoo..ccoomm

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to the acquisition of Scapino and a considerable increase at Hoogenbosch.

ROCE on continuing operations in the Fashion sector was 22.7%, compared with 54.9% in 2005, this fall being attribut-able mainly to the goodwill paid in relation to the acquisition of Scapino.

(17)

REPORT OF THE MANAGING BOARD/DEVELOPMENTS

15 H

Hooooggeennbboosscchh

Hoogenbosch focuses on the Dutch shoe market with its formats Dolcis, Manfield, Invito and PRO sport. Following the acquisition by Macintosh Retail Group in 1997, Hoogenbosch, first established in 1909, has grown into one of the largest shoe retailers in the Netherlands, operating 225 stores at A1 locations and employing some 2,060 people.

With 96 stores having 150 m2_{average floor space, Dolcis is}

Hoogenbosch’s largest shoe format. Dolcis offers a wide range

of shoes for men, women and children under the motto of ‘always fun’ and at competitive prices. Dolcis’ high-quality shoes allow consumers to dress fashionably for the occasion time and again.

Manfield offers a collection of fashionable and elegant footwear characterised by high quality and comfort at an attractive price to highly demanding men and women who value appearance. Manfield operates 63 stores with some

120 m2_{floor space each.}

With its collection of hip, trendy and lavish shoes, bags and accessories, Invito focuses primarily on people with a mind of

their own. Invito has 39 stores with some 100 m2_{floor space,}

which perfectly match the range of distinctive products. PRO sport is among the leading stores offering sneakers and

customers who like to express themselves and value free-dom. PRO sport operates 27 stores with average floor space of some 80 m2_.

H

Hooooggeennbboosscchh iinn 22000066

According to GfK, the shoe market in the Netherlands recorded a 3.1% decrease in 2006 as a whole, after a 0.8% fall in the first half of the year. According to the CBS, however, the market rose by 7.7%. Market developments were affected by disappointing winter sales at the end of 2006, due to mild weather.

Turnover of Hoogenbosch, with its Dolcis, Manfield, Invito and PRO sport shoe stores, was up on 2005, which had been an excellent year, mainly thanks to higher turnover by comparable stores, as well as an increase in the number of stores by 4. Hoogenbosch achieved higher turnover while maintaining a high percentual gross margin and reducing absolute costs, resulting in a considerable rise in operating result.

Turnover of Dolcis rose compared with 2005, mainly as a result of organic growth. Dolcis opened 2 new stores at the end of 2006, bringing the total to 96. Manfield’s turnover was higher due to organic growth and the opening of 1 store, bringing the total to 63. Invito likewise achieved higher turnover in 2006, thanks to a rise in sales at existing stores and the opening of 1 new store, bringing the total to 39. PRO sport’s turnover was considerably higher in 2006 as a result of turnover growth at existing stores. The number of PRO sport stores remained unchanged at 27.

T

Thhee ffuuttuurree ooff HHooooggeennbboosscchh

For Hoogenbosch, expectations are that the favourable fashion trend of expensive boots for women will play a more modest role in 2007, which can only be compensated by the sale of higher quantities. Over the next few years, the Hoogenbosch shoe formats will focus on turnover growth by enhancing the distinctive characteristics of the existing store formats. In due course, the number of stores will be expanded by 15 to 20, approximately 10 of which in 2007. Furthermore, the intention is to increase sourcing in the Far East through Macintosh Hong

(18)

S Sccaappiinnoo

With 189 self-service stores, Scapino is the leading contemp-orary shoe discounter in the Netherlands for the whole family, offering a product range that, in addition to shoes, consists of clothing and sports and leisure products (total approximately 35%). Scapino offers surprisingly attractively priced, up-to-date and quality products. The Scapino stores are mainly situated at A2 and B1 locations in town centres, with average retail floor

space of 800 m2_{. Scapino operates 27 stores on the outskirts}

of towns in Belgium and 6 outlet stores in Germany. Scapino employs more than 3,000 staff. Its stores have a contemporary layout, provid-ing a fresh image. The product range is well laid out, with shoes being displayed by size, and special-price items occup-ying dominant positions in the stores.

The customer is key to every-thing Scapino’s employees believe in and do. These employees are being trained in accordance with a ‘Klanthousiast’ (enthusiastic customer) concept setting out Scapino’s core values. Customers consider Scapino to sell high-quality shoes at very attractive prices. This explains Scapino’s slogan: Scapino. Worth the walk!

S

Sccaappiinnoo iinn 22000066

Shoe discounter Scapino was acquired as at February 1, 2006. The shareholders of Macintosh Retail Group unani-mously approved the acquisi-tion.

Scapino has been a consistently profitable company for many years. In the eleven months starting February 1, 2006, Scapino achieved turnover of € 177.0 million. Scapino’s sales were higher than in the same period of 2005, due to growth at comparable stores, thanks in part to successful investments in further strengthening the store format, as well as to the net increase in the number of stores by 6. Its performance in the last two months of the first half of 2006 was particularly excellent. However, disappointing sales were recorded in November and December 2006, due to mild weather. Scapino’s operating result in the period from its acquisition to December 31, 2006 (11 months) also exceeded that of the same period in 2005, mainly due to a higher percentual gross

month of January - which is usually not profitable for shoe retailers due to the clearance sale - has not been included in the 2006 consolidation.

In 2006, Scapino opened 5 new stores in the Netherlands and 2 in Belgium. It also closed 1 store in Germany, bringing the total number of stores to 222, compared with 216 per the date of the acquisition. In 2006, Scapino converted 8 stores into the renewed format, bringing the total number of redesigned stores to 56. Scapino’s webshop was successful, generating a

substantial rise in the number of visits.

T

Thhee ffuuttuurree ooff SSccaappiinnoo

In 2007, Scapino will continue to invest in converting approxi-mately 12 stores into the proven successful renewed format. In addition, the purchasing activities through Macintosh Hong Kong will be expanded further. Scapino expects to open some 10 new stores in the Netherlands in the next 3 years, some of which will replace existing stores. In that period, some 15 stores will be opened in Belgium, approximately 5 of which in 2007. In 2007, 3 stores will be closed in Germany.

N

Neeaa IInntteerrnnaattiioonnaall iinn 22000066

(19)

REPORT OF THE MANAGING BOARD/DEVELOPMENTS

S

R

Reettaaiill cchhaaiinn DDoollcciiss IInnvviittoo MMaannffiieelldd PPRROO ssppoorrtt SSccaappiinnoo FFaasshhiioonn C

Coouunnttrriieess NNLL NNLL NNLL NNLL NNLL BB GG TToottaall

N

-- DDeecceemmbbeerr 3311,, 22000066 9966 3399 6633 2277 118899 2277 66 444477

- December 31, 20052 ₉₄ ₃₈ ₆₂ ₂₇ ₁₈₄ ₂₅ ₇ ₄₃₇

R

-- DDeecceemmbbeerr 3311,, 22000066 1313,,440000 33,,330000 66,,990000 11,,990000 115533,,990000 2211,,660000 44,,440000 220055,,440000

- December 31, 20052 _13,000 _3,200 _6,900 _1,900 _150,500 _20,000 _5,200 _200,700

2 Scapino: February 1, 2006

limbs respectively. Nea’s braces are leading in their markets. Nea has built up a strong position in a number of European countries in which it sells the braces under distribution agreements concluded with third parties. Following the increase in turnover in 2005, Nea International achieved higher sales once again in 2006. However, Nea International’s share of total turnover of the Fashion sector is modest. The operating result was up again in 2006.

Fashion

T

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(20)

• Dutch telecom market has become mature but remains a major replacement market. Fall in number of telephones sold of nearly 7%.

• Number of navigation systems sold up again (+ 72% in value terms).

• Turnover for sector up € 10.7 million to € 321.0 million. • Operating result: € 20.1 million (2005: € 20.3 million).

• ROCE: 32.6% (2005: 34.1%).

• Number of BelCompany stores up by 34 to 212; number of Halfords stores up by 3 to 152.

A

Auuttoommoottiivvee && TTeelleeccoomm sseeccttoorr ffiinnaanncciiaall

Turnover of the Automotive & Telecom sector rose by € 10.7 million to € 321.0 million (2005: € 310.3 million). This increase was due to higher turnover at BelCompany as well as Halfords. The operating result for this sector in 2006 was € 20.1 million, compared with € 20.3 million in 2005. This was due, on balance, to a rise at Halfords and a fall at BelCompany Belgium.

ROCE in this sector was down from 34.1% to 32.6%.

Automotive

& Telecom

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BelCompany is the largest retailer of mobile communications in the Netherlands and occupies second place as independent supplier in Belgium. At BelCompany, customers can obtain a wide product range, including all brands of mobile telephones, accessories, subscriptions, prepaid products, data products, prepaid telephone cards and internet services, such as ADSL and VoIP. BelCompany serves its customers independently of network operators and hardware suppliers. BelCompany’s approximately 1,050 employees are trained and retrained at the own BelCompany School. As a result, BelCompany has specialised staff providing expert advice to customers.

(21)

REPORT OF THE MANAGING BOARD/DEVELOPMENTS

19 BelCompany’s more than 200 stores are mainly situated at A1

locations in large and medium-sized cities in the Netherlands

and Belgium and have floor space of over 50 m2_{. BelCompany}

Business Solutions provides services to business clients. BelCompany Netherlands’ full range of products is also available via the Internet, together with articles that are not customarily held in stock at its stores.

B

BeellCCoommppaannyy iinn 22000066

After several years of considerable growth, the mobile telecom market in the Netherlands has reached maturity. The number of telephones sold fell by almost 7% in 2006 (GfK). All major retail chains, including those of telecom operators, nonetheless expanded significantly. Subsidies from telecom operators were reduced as from August 2006. According to GfK, the Belgian telecom market recorded a rise of 10% in the number of telephones sold.

On balance, the number of BelCompany stores in the Netherlands increased by 18. BelCompany’s turnover in the Netherlands matched that of 2005. BelCompany managed to maintain its position as the largest mobile telecom retailer in the Netherlands in terms of number of subscriptions sold. Its

shift in the ‘income mix’. After a weak first half year of 2006, BelCompany Netherlands’ operating result for the full year 2006 equalled the exceptionally high level of 2005.

BelCompany’s own-brand ‘qick’ mobile prepaid product that was launched in mid-2004, achieved similar turnover in 2006 as in 2005, but a higher and positive operating result. BelCompany Netherlands opened 20 stores and closed 2, bringing the total number of stores to 156 stores on balance. Six stores were opened in combination with a Halfords Superstore. BelCompany paid considerable attention to fur-ther developing its websites in 2006, as the significance of the Internet as a sales channel has risen sharply. However, online turnover is still modest in absolute terms, BelCompany increasingly uses its own customer databases. BelCompany further increased its market share in Belgium by opening 16 stores, bringing the total number of stores to 56 and boosting BelCompany’s turnover in Belgium as a result. The major expansion partly ensued from the strategic necessity for BelCompany to obtain a presence in Wallonia and the Brussels area as well, to be able to offer telecom operators national coverage. BelCompany currently has 10 stores in Wallonia and 10 in the Brussels area. Due to costs and management attention in connection with the expan-sion, BelCompany’s operating result in Belgium lagged behind 2005, leading to an operating loss for 2006.

T

Thhee ffuuttuurree ooff BBeellCCoommppaannyy

After a number of years of significant growth, the Dutch telecom market has now reached maturity, but continues to be a major replacement market in the future. Partly because of these changes the Dutch telecom operators have altered their market approach (lower bonuses). In combination with the expected further rise in the sale of ‘combo subscriptions’, with different subscriptions such as fixed telephone lines and mobile telecom, digital TV and broadband Internet being sold as package deals without the corresponding hardware, this is expected to depress BelCompany’s turnover. However, the sale of these combo subscriptions will have a positive effect

(22)

the advisory function of the retailer will become more important since an equal mobile phone will require a larger investment on the part of the consumer and the level of inte-gration of mobile telecom, music, photography, video and TV keeps progressing. BelCompany Netherlands is perfectly equipped to continue to be successful in this changing market, thanks in part to its adequate cost structure and further future improvements of that structure. Given that a dense distribution network continues to be important to conclude good contracts with operators,

BelCompany will open approx-imately 30 more stores in the Netherlands in the next few years, some 10 of which in 2007.

In Belgium, where subsidised mobile phones are an unknown phenomenon, BelCompany expects to grow further towards nation-wide coverage over the next few years. Approximately 5 new stores will be opened in 2007. The focus will also be on get-ting the recently opened stores up to speed and improving their results.

V

VAATT iissssuueess iinn tteelleeccoomm sseeccttoorr As stated in previous annual reports, independent telecom retailers in the Netherlands were confronted at the beginning of 2004 with a decree published by the Ministry of Finance concern-ing the levyconcern-ing of VAT on mobile telephones supplied ‘free of charge’ or below cost in combination with a

tele-phone service subscription. Partly based on discussions initiated by the sector and industry associations, the Ministry has since announced its intention to reverse this decree from January 2004.

H Haallffoorrddss

With 143 stores in the Netherlands, Halfords is the largest retailer of products for people travelling by car or by bicycle. Halfords has 9 stores in Belgium. The range of products offered by Halfords allows mobile consumers to travel easily, pleasantly and safely. A-brands and own-brand products ensure manifest quality at attractive prices. Halfords is market leader in car and bicycle accessories, car audio and navigation systems. In addition, Halfords is one of the largest bicycle

service ensure that Halfords provides proper assistance to customers at all times. Halfords has town centre stores situat-ed at busy shopping locations with a floor space of some 280

m2_{and Superstores, usually located on the outskirts of towns,}

with a floor space of some 600 m2_{. Superstores have a more}

extensive product range and special facilities for installing alarm and navigation systems, hands free car kits for mobile phones, audio and in-car entertainment systems. Halfords employs more than 1,000 people.

H

Haallffoorrddss iinn 22000066

In the Netherlands, 2006 once more saw a steep rise of the mobile navigation systems market (GfK: + 127%). The installed navigation systems market contracted by 39.1%, resulting in a net rise of the total navigation market of 72%. However, the increase was accompanied by price erosion and a substantial increase in the number of points of sale. The Dutch bicycle market grew by 10.2%, thanks to a warm summer, whereas the audio market deteriorated in terms of value yet again, this time by 12.7%. Developments in the Belgian navigation market were likewise favourable.

Halfords’ turnover increased, owing to higher turnover at comparable stores and expansion. The success of the ‘Union’ bike launched in 2006 and increased sales of mobile navigation

(23)

REPORT OF THE MANAGING BOARD/DEVELOPMENTS

Union branded bike enabled Halfords to substantially improve its position in the mid-range of the bicycle market, which is dominated by traditional bicycle stores. Halfords successfully maintained its leading position in the navigation market. Halfords managed to boost sales of accessories by adequate-ly responding to changes in the law regarding child car seats and the introduction of moped licence plates. Halfords restyled its website and introduced a webshop in mid-2006. Despite the relatively low gross margins on navigation

systems and bicycles, Halfords improved its gross margin as a percentage of turnover in 2006, which in combination with lower percentual costs led to a considerable rise in Halfords’ operating result.

Halfords opened 5 stores, including 2 franchisees, in the Netherlands. Two stores were closed while 2 own stores were transferred to franchisees, bringing the total number of stores to 143. Due to the opening of 1 store and the closure of 1 other store, the number of Halfords stores in Belgium remained unchanged at 9.

Automotive

& Telecom

S

R

Reettaaiill cchhaaiinn BBeellCCoommppaannyy HHaallffoorrddss AAuuttoommoottiivvee &

& TTeelleeccoomm C

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N

-- DDeecceemmbbeerr 3311,, 22000066 151566 5566 114433 99 336644

- December 31, 2005 138 40 140 9 327

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- December 31, 2005 8,300 2,200 39,300 2,800 52,600

1 Including 25 franchisees in 2006 and 21 in 2005.

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In the Netherlands, Halfords sees sufficient potential for expanding its chain of stores, especially in smaller towns. Rental and investment levels are generally lower there and space is freed up as small independent specialised stores leave. Halfords intends to gradually have franchisees operate the new stores because, as self-employed persons, they are better suited to key into the needs of local consumers in small-er towns. The challenge for Halfords Belgium is to enhance the

retail format profile among consumers and demonstrate that Halfords is an inviting, attractively-priced format providing good service. Halfords expects to further increase the number of stores in the Benelux in the next few years and will open approximately 5 new stores in 2007.

(24)

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Macintosh Intragroup Services provides services to Macintosh Retail Group and its subsidiaries. These services comprise funding and implementing the treasury function for the Macintosh group companies, as well as providing mainly administrative services to group companies active in Belgium. Macintosh Intragroup Services employed 10 people at year-end 2006.

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Macintosh Hong Kong was incorporated in 1995 as a purchase office with the intention of achieving higher gross margins and a stronger competitive position as a result by eliminating inter-mediate trading and agents. The involvement of Macintosh Hong Kong enables store formats to realise higher margins, as well as to market new products in the Benelux and France over shorter periods of time. In addition, products are guaranteed to meet the quality standards set by the store formats. Macintosh Hong Kong is responsible for purchasing products for the Living, Fashion and Automotive & Telecom sectors covering an area mainly comprising China, Indonesia, Vietnam, India and Pakistan. The activities include sourcing, purchasing, order tracking and logistics and administrative services. In 2006, the volume of goods purchased via Macintosh Hong Kong declined compared with 2005, when the clothing activities had contributed to the turnover of Macintosh Hong Kong. In autumn 2006, Scapino began using the facilities of Macintosh Hong Kong on a modest scale. Approximately 6% of total purchase volume of Macintosh Retail Group was accounted for in this manner, with the home decoration sector being responsible for the largest share. This percentage is expected to grow further in the next few years, due mainly to the expansion of Scapino’s purchase activities via Macintosh Hong Kong. Macintosh Hong Kong, whose operating result rose in the year under review, employed 22 people at year-end 2006.

(25)

REPORT OF THE MANAGING BOARD/DEVELOPMENTS

The websites of Halfords and Kwantum, among others, were restyled in 2006. This process will be continued in 2007. The strengths of the group companies are combined as much as possible in implementing these applications. This also applies to the development of eMailmarketing and online marketing. In addition to the use of the Internet directed at consumers (eCommerce), Macintosh Retail Group also deploys Internet technology to exchange information and manage processes between head offices, distribution centres and stores, as well as communicate with suppliers (eOperations).

As in previous years, the number of visits to websites of Macintosh Retail Group formats increased further, from 20 million in 2004 and 30 million in 2005 to 40 million in 2006. A large number of consumers regard the websites as a logical extension of the stores of Macintosh Retail Group. They consult websites prior to, but also after, visiting the stores. Information on products and services is therefore essential. Special offers and promotional material are presented online, and websites contain extensive product information. The maximum possible range of products is offered online, including at least the standard range of products for most formats. In addition, other services helping customers choose between products are increasingly being launched. Their purpose is to assist customers during the purchasing process. These services will be expanded in the coming years, riding the waves of increasing broadband Internet facilities.

Online sales are growing rapidly, but are still limited as a percentage of total turnover. However, increased acceptance of the Internet as a sales channel and the implementation of new means of payment is expected to result in a further rise in online sales in the next few years.

By the same token, online marketing via third-party websites and eMailmarketing are becoming increasingly important. Next to door-to-door brochures, the Internet is the most important client communication medium for Macintosh Retail Group’s retail formats.

e B u s i n e s s

• Some 40 million visitors on websites (2006: 30 million). • Growing impact of the Internet on visits to stores.

• Retail format websites are a logical extension to physical stores. • Online retail sales on the rise.

(26)

Movements in the number of employees were as follows.

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than 3,000 new employees in the Fashion sector following the acquisition of Scapino. The Automotive & Telecom sector recorded a rise in the number of employees of 132, bringing the total to 2,099.

The other activities (Nea International, Macintosh Hong Kong and Macintosh Intragroup Services) saw the number of employees decline by 1, to 54. The number of staff of Macintosh Retail Group NV fell by 1, bringing the total to 25. N

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In 2006, the number of employees at continuing retail trading operations of Macintosh Retail Group rose from 6,026 to 9,093 (FTEs: 3,900 and 5,035 respectively), due mainly to the acquisition of Scapino. The number of employees at continuing operations in the Living sector declined by 84, from 1,993 to 1,909, mainly owing to the closure of 8 Kwantum stores on balance, in particular in Wallonia. Macintosh welcomed more

P e r s o n n e l a n d o r g a n i s a t i o n

• Number of employees up from 6,606 to 9,627 (FTEs: 4,609 and 5,470 respectively).

• Further decline in absenteeism due to illness.

• Constructive dialogue with works councils.

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is our

TABLE OF CONTENTS

EBITDA 8899..11 63.3

KEY FIGURES 3

REPORT OF THE MANAGING BOARD/DEVELOPMENTS

REPORT OF THE MANAGING BOARD/DEVELOPMENTS

EBITDA 8899..11 8855..22 63.3 55.1

REPORT OF THE MANAGING BOARD/DEVELOPMENTS

Living

REPORT OF THE MANAGING BOARD/DEVELOPMENTS

REPORT OF THE MANAGING BOARD/DEVELOPMENTS

Living

Fashion

REPORT OF THE MANAGING BOARD/DEVELOPMENTS

REPORT OF THE MANAGING BOARD/DEVELOPMENTS

Fashion

Automotive

REPORT OF THE MANAGING BOARD/DEVELOPMENTS

REPORT OF THE MANAGING BOARD/DEVELOPMENTS

Automotive

REPORT OF THE MANAGING BOARD/DEVELOPMENTS