ANNUAL REPORT OF THE GROUP 2007/2008 CONTENTS 1 – 60 To our shareholders 1 Letter to Shareholders 8 Management Board 10 Pro forma presentation 12 Strategy 16 The operating segments 18 Thomas Cook 26 Primondo 34 Karstadt 42 The Arcandor share 45 Investor Relations 46 Report of the Supervisory Board 57 Corporate Governance 61 -90 Consolidated management report 61 Detailed table of contents 62 The Group 62 Group structure and operating activities 63 Management and control 68 Capital 71 General economic conditions 72 Overview of the 2007/2008 financial year 74 Results of operations, financial position and net assets 82 Non-financial performance indicators 85 Dependent companies report 86 Report on post-balance sheet date events 86 Risk report 90 Report on expected developments 91-154 Consolidated financial statements 91 Detailed table of contents 92 Consolidated financial statements 96 Notes to the consolidated financial statement 157 Auditor’s report 158 Responsibility statement 159 -162 Index At a glance 01.10.2007 01.10.2006 Change – 30.09.2008* – 30.09.2007* in % SALES (like-for-like pro forma basis) Thomas Cook 1) mill. € 11,378.5 11,758.5 -3.2 Primondo mill. € 4,309.8 4,037.5 6.7 Karstadt mill. € 4,095.1 4,238.2 -3.4 Operating segments 1) mill. € 19,783.4 20,034.2 -1.3 Other segments 2) mill. € 205.6 262.3 - Reconciliation account 1) mill. € -77.6 -156.3 - Sales (adjusted) 1) mill. € 19,911.4 20,140.2 -1.1 01.10.2007 01.10.2006 Change – 30.09.2008* – 30.09.2007* in mill. € EARNINGS (like-for-like pro forma basis) Thomas Cook 1) mill. € 734.7 534.6 200.1 Primondo mill. € 89.7 4.73) 85.0 Karstadt mill. € -4.2 147.7 -151.9 Operating segments 1) mill. € 820.2 687.0 133.2 Other segments 2) Reconciliation account/Holding company mill. € -66.4 -86.1 19.7 EBITDA (adjusted) 1) mill. € 753.8 600.9 152.9 EBITDA margin (adjusted) 1) in % 3.8 3.0 - 01.10.2007 01.10.2006 Change – 30.09.2008* – 30.09.2007* in % FINANCIAL SITUATION Investments mill. € 397.0 321.2 23.6 Depreciation and amortization (not including amortization of goodwill) mill. € -528.9 -518.6 -2.0 Net financial liabilities/assets mill. € -801.8 185.4 - Finance lease mill. € -1,259.0 -814.3 54.6 Working capital mill. € -1,109.5 -567.5 -95.5 FULL-TIME EMPLOYEES at the balance-sheet date (like-for-like pro forma basis) Thomas Cook number 31,264 29,070 7.5 Primondo number 15,606 16,837 -7.3 Karstadt number 23,195 24,304 -4.6 Operating segments number 70,065 70,211 -0.2 Other segments 2), Holding company number 378 426 -11.3 Total number 70,443 70,637 -0.3 ARCANDOR SHARE Earnings per share (undiluted) € -3.35 0.134) - Share price at the balance-sheet date € 2.33 23.48 -90.1 Highest price € 23.21 29.214) -20.5 Lowest price € 1.87 17.964) -89.6 * The data has been adjusted. The adjustments relate to special factors, divestments and restructuring expenses in EBITDA. 1) In order to better illustrate the development of the business Arcandor compares a full year of the current period (October 2007 to September 2008) for Thomas Cook Group plc with a full year period (October 2006 to September 2007) as if Thomas Cook Group plc had already existed. The October results for each year represent an Arcandor calculation consisting of the difference between the full year results an the September cumulative numbers of Thomas Cook Group plc. The October numbers of each year contain the usual year end bookings/adjustments and have not been readjusted for this pro forma exercise. 2) The Other segments comprise: Services and Real Estate. 3) Adjusted for the accounting of catalog costs and program fees. 4) Data for the period for January 1, 2007 to September 30, 2007. Arcandor is a leading tourism and retail group with three independent operating businesses: Thomas Cook, Primondo and Karstadt. In our investment portfolio, we are concentrating exclusively on business segments in which we have a leading market position with the objective of consolidating this market position on a sustained basis. THOMAS COOK PRIMONDO KARSTADT No. 2 in Europe No. 1 in Germany No. 1 in Germany No. 2 in Germany No. 3 in e-commerce No. 1 in the German No. 2 in the UK Market leader in many textile market No. 1 in Scandinavia European countries No. 1 in the German sports market No. 2 in Canada Strong portfolio in specialty mail order Top locations 57 % 22 % 21 % Share of Group sales in % Despite the difficult environment, we defended our position in the 2007/2008 financial year. Overall, our three operat- ing divisions – Thomas Cook, Primondo and Karstadt – again increased their adjusted EBITDA. As a result, we continued an upward operating trend which has been in place for the last four years. In comparison to 2004, we improved adjusted EBITDA of our operating segments significantly. 820 687 Operating adjusted ebitda 1) in mill. € 338 260 157 2004 2) 2005 2006 2006/2007 2007/2008 1) Adjusted = without restructuring expenses 2004 – 2005 before changes in accounting policy. 2) In 2004, Thomas Cook was consolidated by the equity method. EARNINGS CONTINUOUSLY INCREASED Letter to Shareholders Dr. Thomas Middelhoff Chairman of the Management Board Dear shareholders, For some time now, we have been moving in an extraordinarily challenging economic environment. The current economic and financial market crisis is a crisis of a new kind, for which there is little experience and no panacea to fight it and of which the duration cannot currently be estimated. IN THE OPERATING SEGMENTS ADJUSTED EBITDA UP 133 MILL. € TO 820 MILL. € IN THE 2007/2008 FINANCIAL YEAR The Arcandor Group and Arcandor shares were already put under pressure early on in connection with the crisis on the capital market because, in the context of pessimistic expectations, it was assumed that the areas of tourism and trade could be impacted in a strong fashion. Despite the difficult environment, we defended our position in the 2007/2008 financial year. Overall, our three operating divisions – Thomas Cook, Primondo and Karstadt – again increased their adjusted EBITDA. As a result, we continued an upward operating trend which has been in place for the last four years. In comparison to 2004, we improved adjusted EBITDA of our operating segments by a strong factor. In the 2007/2008 financial year (pro forma), it rose by 133 mill. a to 820 mill. a. That equates to a rise of 19.4 %. Thomas Cook and Primondo developed well and improved their result, while the result at Karstadt significantly worsened compared to the previous year as a result of the weak economic environment and several internal factors. Adjusted for currency effects, adjusted Group sales in the 2007/2008 financial year were up 3.1 % year-on-year. On a euro basis, adjusted Group sales reached 20 bill. a and were therefore almost at the same level of the previous year. In comparison to 2004, we have thus increased Group sales by around 50 %. 1 TO OUR SHAREHOLDERS CONSOLidaTED MANagEMENT REPORT CONSOLidaTED FINANCIAL STATEMENTS In the restructuring phase of the Arcandor Group, we invested significant financial funds in the realignment of our operating segments. In the reporting period alone, there were restructuring expenses in the income statement totaling 434 mill. a, which primarily benefited the Thomas Cook and MyTravel merger. There- fore, through consistent focusing on tourism, e-commerce and internationalization, we created future- driven structures and secured tens of thousands of jobs. This operating development in the 2007/2008 financial year is not shown in the consolidated income statement, particularly as a result of restructuring. The consolidated result totaling minus 746 mill. a is not primarily affected by sustained operating developments, but by a series of one-off expenses and non-recur- ring effects. Thus, it includes high restructuring expenses and extraordinary negative charges in the area of taxes as well as earnings from real estate disposal. Also, it needs to be considered that the month of October has not been taken into account in the Thomas Cook Group plc as a result of the financial year being shortened to eleven months. However, in this month, Thomas Cook generates a significantly positive seasonal result. From the current 2008/2009 financial year, these extraordinary negative effects will decline significantly. THOMAS COOK AND PRIMONDO POST GOOD PERFORMANCE, KARSTADT’S PROFITS DECLINE Thomas Cook Group plc reported a strong 2007/2008 financial year and exceeded market expectations. Adjusted EBITDA (pro forma), consolidated in the Arcandor financial statements, increased by 200 mill. a against the previous year to 735 mill. a (535 mill. a in the previous year). The annual financial statements of the tourism company show adjusted earnings per share in local currency (pro forma) amounting to 24.1 pence. This equates to an increase of 41 %. The EBIT margin was 4.2 %, increased by 36 % and lies signifi- cantly above comparable competition. The higher-than-expected synergies resulting from the MyTravel acquisition made a particular contribution to this good earnings performance. In addition, effective capacity management which resulted in a rigorous reduction in unprofitable sales increased the sales margin on a sustained basis. The significant earnings increase is all the more pleasing because it was achieved despite the additional negative impact of approximately 170 mill. a resulting from higher fuel costs. Sales of the tourism group, which presents its accounts in British Pound, were up 11.8 % against the previous year.