You take centre stage as an investor - BBI Immobilien AG · In good company … 13. 14 “Over 80% triple-net leases increase the ... Jan Feb Mar April May June July Aug Sept Oct

BBIBürgerliches Brauhaus Immobilien AG

We can put youin the best position Annual report 2006

You take centre stage as an investor

4

Key performance indicators (IFRS)

changeIn tsd. EUR 2006 2005 in %

Net sales 15,462 15,437 + 0.16

Rental yield 1,436 1,420 + 1.13

EBIT 2,192 695 + 315.40

EBIT Margin 14.18% 4.50% -

EBT 1,616 137 + 1,179.56

Net income 922 65 + 1,418.46

Cash fl ow from operating activities 4,487 2,300 + 195.09

Balance sheet total 104,370 28,998 + 359.92

Equity 63,351 10,297 + 615.24

Equity ratio 60.70% 35.50% -

Earnings per share in EUR 0.52 0.04 -

NAV per share in EUR 13.86 n. a. -

Index

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We can put you in the best position Competitive advantages at a glance 6

ReportsLetter to Shareholders 20

Report of the Supervisory Board 22

Investor RelationsShare price 26

Share information 27

Shareholder structure 28

Capital measures 28

Communication with our investors 29

Milestones of the BBI AG 30

Compliance with the German Corporate Governance Code 32

PortfolioReal estate portfolio at a glance 36

Specialist retailers 38

Historical portfolio 39

Investment projects 40

Group Management ReportA. Economic Review 44

B. Events after the balance sheet date 56

C. Risk Report and Outlook 57

D. Further information 61

Group Financial StatementsConsolidated balance sheet 64

Consolidated income statement 66

Statement of changes in equity 67

IAS/IFRS cash fl ow statement 68

Notes1. General information 72

2. Notes to the items in the fi nancial statements 81

3. Other disclosures 96

Auditors’ Report 107

Imprint 111

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“We take full advantage of our distinctiveregional and national network to build up anattractive real estate portfolio.”

Success in all directions …

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8

“Their clearly-focused strategy contributes to the optimal value creation of the company.”

Our experts take the decisions …

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Ludwig Schlosser

- Chairman of the

Supervisory Board -

Peter Schropp

- Chief Executive Offi cer -

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“Result in prompt implementationof investments.”

Fast decisions …

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“Our high share of anchor tenantsresults in low risk costs.we have a zero vacancy rate.”

In good company …

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“Over 80% triple-net leases increase theprofitability of the BBI AG.”

Join hands together,share the profits …

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“Located in the fast-growing south,we focus on growth regions nationwide.”

We can put you in the best position …

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North. South. East. West.We will get you there ….

Letter to Shareholders 20

Report of the Supervisory Board 22

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Reports Investor Relations Portfolio Group Manage-

ment Report NotesGroup Financial Statements

Dear Shareholders,

An eventful year lies behind us, characterised by the strategic reorientation of the BBI AG. This was made

possible through a change in our shareholders´ structure. When the successful real estate holding com-

pany VIB Vermögen AG took over almost 95% of the shares, our core business was realigned with a new

focus on the acquisition and leasing of high-yield commercial real estate. In order to make the change

that our company has undergone clear at fi rst glance, we have renamed the “BBI Bürgerliches Brauhaus

Ingolstadt AG“ as “BBI Bürgerliches Brauhaus Immobilien AG“. In this respect, the regions we focus on in

particular are fast-growth locations outside large conurbations throughout Germany. We are confi dent

that this change will position our company for accelerated growth in the coming years.

The fi rst step we took towards fi nancing the future expansion was the capital increase that was success-

fully implemented in December 2006. The gross proceeds of the issue amounting to around EUR 46.4m

provided the basis for fi nancing up-coming real estate acquisitions.

Our holding of historical properties was expanded during the expired fi scal year on account of the bre-

wery building being transferred from the Herrnbräu subsidiary to the parent company BBI AG. In additi-

on, new investments are expected to contribute to fast, substantial growth. For this reason, we acquired

ten of a total of 15 specialist retail stores as part of a lucrative real estate portfolio in autumn 2006 and

secured the remaining fi ve at the beginning of the year 2007. At the end of the fi rst quarter 2007 our real

estate portfolio comprised a total of 14 historical and 16 newly acquired properties, whereby we only

accept fi nancially-strong tenants such as Aldi, Lidl, Edeka, Takko, Kik, Deichmann or dm. As our portfolio

is completely let (100%) at standard market prices, we achieve optimal yield.

We have also built the basis for dynamic growth in the years ahead with a total of another 17 specialist

retail centres in Germany that are currently at the construction and development stage. The large pro-

jects have been given the working titles Bavaria and Bavaria-Westfalia respectively, and they are being

implemented by experienced project developers.

Ten of these 17 properties have already been notarised (Bavaria) and we have recently signed a letter of

intent for the Bavaria-Westfalia portfolio comprising six specialist retail centres. The capital investment

amounts to a total of about EUR 153m and transfer of the properties to the BBI AG is expected between

the years 2007 and 2010. As such, we are consistently implementing our investment strategy through

portfolio diversifi cation, placing emphasis on a sustainable sectoral mix and by minimising potential

risks. The change in strategy will not become apparent in the profi t and loss statement until the current

fi nancial year.

The expired fi scal year was still characterised by our long-established subsidiary Herrnbräu. The beve-

rages segment contributed about EUR 14m to our sales of around EUR 15.5m for the Group, while the

Letter to Shareholders

21

remaining turnover was generated through rentals and lease in the real estate segment. There was a

signifi cant rise in earnings before interest and taxes amounting to EUR 2.2m, driven by strategic sales

of individual properties held before the reorientation of the portfolio. We booked around EUR 0.9m

net income for the Group, which also represented a signifi cant increase compared to the previous year

(EUR 0.07m).

On account of our planned expansion, the Management Board recommends that the General Meeting

brings the balance forward to new account.

In the current fi nancial year 2007, we will continue fi rmly along the path we have begun to forge. We

aim to generate rental yields amounting to around 7% with our real estate portfolio and to achieve our

goal of building up a property portfolio with a volume of EUR 750m in the medium term.

We are convinced that we can successively increase the company value of the BBI Bürgerliches Brauhaus

Immobilien AG for our shareholders, and position the company as fi nancially-strong dividend-paying

stock in the German capital market.

Yours sincerely,

Peter Schropp

- Chief Executive Offi cer -

Ingolstadt, April 2007

22



Dear Shareholders,

The expired fi scal year of the BBI AG was characterised by the new focus of the company’s core

business on the acquisition and asset management of commercial real estate. This strategic step

was resolved by the General Meeting on 24th August 2006. In this connection, the Supervisory

Board was newly appointed: In place of the shareholders’ representatives, Messrs. Peter Amberger,

Rupert Hackl, Ludwig Schlosser and Franz-Xaver Schmidbauer were appointed as members of the

Supervisory Board. Ludwig Schlosser was elected as Chairman of the Supervisory Board.

The measures taken in connection with the reorientation of the core business – including changing

the name of the BBI Bürgerliches Brauhaus Ingolstadt AG into BBI Bürgerliches Brauhaus Immo-

bilien AG, and the capital measures that were implemented – were monitored by the Superviso-

ry Board in close co-ordination with the Management Board. In addition, the Supervisory Board

appointed Mr Peter Schropp as the new Chief Executive Offi cer. Mr Schropp succeeded Mr Claus

Paulus, the company’s long-standing CEO, on his retirement. The new CEO’s extensive fi rst-class

network in the German real estate market and his comprehensive know-how in the fi eld of real

estate fi nancing on account of his longstanding banking activities, make Peter Schropp the right

person to spur the BBI AG’s economic growth. The foundation stone for the future successful posi-

tioning of the BBI AG in the real estate market was thus laid by the measures taken.

The Supervisory Board performed its duties in the year under review 2006 in accordance with legal

provisions and the articles of association. In addition to monitoring the activities of the Manage-

ment Board, these duties involved advising the CEO on the running of the company. In the expired

fi scal year, there were altogether six meetings of the Supervisory Board, at which the CEO provided

us with comprehensive reports on the state of the business. Moreover, important individual trans-

actions were dealt with at the meetings and decisions were taken that had become necessary for

statutory reasons or on account of terms in the articles of association with regard to the business

or measures being reviewed. The Supervisory Board was in regular contact with the CEO and was

always kept up to date on the business situation and on signifi cant business transactions.

The Annual Financial Statements as drawn up by the Management Board for the year ended 31st

December 2006 were audited by the Landestreuhand Weihenstephan GmbH Auditing Company,

who issued unqualifi ed audit opinions. The audited Annual Financial Statements, the Consolidated

Financial Statements and the respective audit reports were issued to the members of the Supervi-

sory Board immediately after they had been drawn up. The Annual Financial Statements and the

Consolidated Financial Statements for the year were discussed appropriately with the auditor and

the audit reports met with approval. After conducting our own examination of the Annual Finan-

cial Statements and the Consolidated Financial Statements for the year 2006, we found no grounds

for objection. The Supervisory Board accepted the management report and the group management

Report ofthe Supervisory Board

23

report and approved and adopted the Annual Financial Statements as drawn up by the Manage-

ment Board for the year ended 31st December 2006 without any reserves through the resolution

passed on 26th April, 2007 by written consent in lieu of a meeting. The Annual Financial Statements

are hereby approved. We also approve the Management Board’s proposal for the appropriation of

profi ts.

The Supervisory Board would like to thank the Management Board and the employees of the

BBI Bürgerliches Brauhaus Immobilien Konzern for their high level of personal commitment and

their successful work in the previous fi nancial year 2006.

Ludwig Schlosser

- Chairman of the Supervisory Board -

Neuburg/Donau, April 2007

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“ Personal interests becomelucrative investments.

Our real estate is your capital.”

Share price 26

Share information 27

Shareholder structure 28

Capital measures 28

Communication with our investors 29

Milestones of the BBI AG 30

Compliance with the German Corporate Governance Code 32

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Share price

1st January to 31st December 2006

BBI Bürgerliches Brauhaus Immobilien AG (WKN 528000), Munich Stock Exchange

BBI AG

Jan

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Mar

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May

June

July

Aug

Sept

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Nov

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Share information

Bearer shares

Securities Identifi cation Number 528000

ISIN DE0005280002

Symbol BBI AG

Share type No par value bearer shares

Accounting value EUR 1.00

Number of shares 1,560,000

Market segment Offi cial Market

Market places Munich

Frankfurt

Xetra

New shares

Securities Identifi cation Number A0KPN7

ISIN DE000A0KPN73

Symbol BBI AG 1

Share type No par value bearer shares

Accounting value EUR 1.00

Number of shares 3,640,000

Market segment Regulated Unoffi cial Market

Market places Munich

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Shareholder structure

Capital measures

Various capital measures were carried out during the expired fi scal year 2006 in order to imple-ment company strategy. A capital increase that was resolved by the General Meeting in August 2006 and a share split at the rate of 1:52 were both implemented in December of the expired fi scal year. The number of outstanding shares rose from 30,000 shares to 1,560,000 shares on account of the share split.

Ensuing from the capital increase in December 2006, 3,640,000 new individual bearer shares with an accounting par value of EUR 1.00 were issued to institutional investors within the scope of a private placement. The authorised capital was thus increased from EUR 1,560,000 to EUR 5,200,000. The issue price of the new shares was fi xed at EUR 12.75, whereby gross proceeds from the issue amounting to EUR 46.41m fl owed to the BBI AG. This was partly reinvested during the expired fi scal year 2006 and will be used completely for investments in new, attractive commercial real estate in the current year.

Management/Supervisory Board 5.42%

Free fl oat 62.25%

Raiffeisen VolksbankNeuburg/Donau eG 3.84% VIB Vermögen AG 28.49%

29

In the medium term, the BBI AG aims to build up a fi nancially-strong real estate portfolio with a volume of around EUR 750m. The company is planning further capital increases to fi nance these investments. In this respect, the fi rst measure is to be implemented in the second half of the year 2007, subject to approval by the General Meeting. This step makes sense in two respects: on the one hand, fi nancing will be available for new, high-yield real estate projects, and on the other hand, accompanying the issue of new shares, there will be an increase in free fl oat. In view of the fact that free fl oat is relatively low at present, the liquidity of the share is likewise low. This is expected to change through the planned capital measures.

Communication with our investors

In order to increase the liquidity of the share, the BBI AG also focuses on open communication with the capital market. It is a matter of course for us to have regular talks with investors, analysts and economic journalists, and to participate in conferences for investors. In addition, detailed coverage of important operational results, in the form of annual and semi-annual reports, press and ad hoc releases, is intended to secure the high transparency that the company is striving for. The BBI AG is also hoping to achieve a continual fl ow and exchange of information with the fi nancial community via the redesigned website www.bbi-immobilien-ag.de .

An important additional factor in advance of the capital increase will be the road show events in Germany and abroad. At the same time, the BBI AG aims to develop contacts to analysts by inten-sifying its market presence. Investors are able to get an objective picture of company development. Increased investor interest in connection with the planned launch of designated sponsoring should contribute towards moving the share more into the focus of the capital market.

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Milestones of the BBI AG

May 2006 Acquisition of 94.45% of the shares by the VIB Vermögen AG

June 2006 Change in members of the Supervisory Board, Mr Ludwig Schlosser elected as new chairman

Transfer of the brewery building from Herrnbräu GmbH & Co. KG to the BBI AG, following which, all of the historical properties are now owned by the BBI AG

August 2006 General Meeting, resolutions approved for capital increase and share split that serve the expansion of business operations

October 2006 Implementation of share split at the ratio of 1:52; renaming of the BBI Bürgerliches Brauhaus Ingolstadt AG as BBI Bürgerliches Brauhaus Immobilien AG

November 2006 Appointment of Mr Peter Schropp as Chief Executive Offi cer

Notarisation of the Bavaria portfolio consisting of ten specialist retail centres, still at the planning stage; acquisition price including ancillary costs of the acquisition approx. EUR 110m

December 2006 Conclusion of a purchase agreement for the fi rst ten specialist retailers of a total parcel of 15 in fast-growth regions of Germany; the respective portion of the purchase price amounts to EUR 56.3m, payment and legal transfer at the end of December

Successful conclusion of capital increase: proceeds of issue amount to EUR 46.4m; as a result, authorised capital increases to EUR 5.2m and the amount of holding of the VIB Vermögen AG in the BBI AG drops to 28.49%

January 2007 Notarisation of the purchase agreement for the acquisition of the remaining fi ve specialist retailers of the original parcel of 15; purchase price for this part amounts to EUR 36.7m and was paid at the end of January

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March 2007 Signing of a letter of intent for the acquisition of a commercial property in Pfaffenhofen/Ilm; capital expenditure amounting to approx. EUR 13.5m

Signing of a letter of intent for the acquisition of the planned so-called Bavaria-Westfalia portfolio estate, consisting of six specialist retailer centres located in Bavaria (5) and North Rhine-Westphalia (1); capital expenditure amounting to approx. EUR 29.1m

July 2007 General Meeting and voting on an additional capital increase required to push the growth aimed at by the BBI AG

Autumn 2007 Following the approval of the General Meeting: implementation of planned capital increase, followed by acquisition of further, lucrative commercial real estate

November 2007 Delivery of the fi rst two of six specialist retailer centres of the existing real estate Bavaria-Westfalia portfolio, resulting in initial rental return from these properties being generated in the current year

2008 Delivery of the remaining four properties of the Bavaria-Westfalia portfolio by November 2008

Completion and delivery of the fi rst fi ve specialist retailers of the Bavaria portfolio, which comprises a total of ten specialist retailer centres

Delivery of the specialist retailer in Pfaffenhofen/Ilm

2009 - 2010 Delivery of the remaining real estate of the Bavaria portfolio to the BBI AG

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Declaration of conformity with §§ 161 AkG*, 15 EG AKG* with reference to the German Corporate Governance Code (as amended on 12th June 2006)

The “shall” recommendations of the “Commission of the German Corporate Governance Code” published by the Federal Ministry of Justice in the offi cial section of the electronic Federal Gazette are being fully complied with and will continue to be fully complied with.

The recommendations are not being applied in the following points:

• Proxies for the shareholders (section 2.3.3).

• It is not possible to follow the General Meeting by using modern communication media (section 2.3.4).

• The company has taken out a D&O insurance policy but a suitable deductible has not been agreed (section 3.8)

• The company is represented by a sole executive manager (section 4.2.1).

• Specifi cation of an age limit for members of the Management Board (section 5.1.2).

• The company forms no committees by reason of its size (section 5.3)

• Specifi cation of an age limit for members of the Supervisory Board (section 5.4.1).

• Special terms of reference for the Supervisory Board (section 5.1.3), as the legal provisions provide a comprehensive defi nition with regard to the way it works.

• Individualisation of the shareholdings, including options, of the members of the Management and Supervisory Boards (section 6.6)

• Information disclosed is exclusively in the German language (section 6.8).

• Public accessibility to the Consolidated Financial Statements within 90 days after the end of the fi nancial year and to the interim reports within 45 days after the end of the reporting period (section 7.1.2).

BBI Bürgerliches Brauhaus Immobilien AG

Peter Schropp Ludwig Schlosser- Chief Executive Offi cer - - Chairman of the Supervisory Board -Ingolstadt, 22nd January, 2007 Neuburg, 22nd January, 2007

Compliance with the GermanCorporate Governance Code

*German Stock Corporation Act

34

“Optional” becomes “optimal”.We can put you in the best position.

Real estate portfolio at a glance 36

Specialist retail centres 38

Historical portfolio 39

Investment plans 40

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The real estate portfolio of the BBI Bürgerliches Brauhaus Immobilien AG at the end of March 2007 comprised 14 properties from previous holdings and 16 newly acquired specialist retailers.

The previous portfolio holdings referred to are properties formerly owned by Herrnbräu GmbH & Co. KG. These were for the most part transferred to the BBI AG in the year 2003. The remaining Herrnbräu brewery buildings were transferred to the BBI in 2006, concluding this corporate action. The real estate of the historical holdings comprises almost without exception business premises with a restaurant. But a piece of land encumbered with a hereditary building right also forms part of the historical holdings.

The new properties comprise, on the one hand, 15 specialist retailers in fast-growth regions in Ger-many and on the other, a self-service store in Pfaffenhofen/Ilm.

The company has secured more specialist retail centres, presently at the planning stage, by contracts and letters of intent.

Real estate portfolioat a glance

Specialist retailers, historical portfolio and investment plans of the BBI AG

37

The tenants of the specialist retail stores are fi nancially-strong, established retail chains and retai-lers with branches covering daily, medium and long-term needs.Long-standing tenancies exist with the tenants of the historical holdings. In the meantime, lease agreements have become short to medium-term.

Duration of lease agreements

The book value of the portfolio comprising previous holdings and specialist retailers amounted to around EUR 130m at the end of March 2007 in accordance with IFRS-based fi nancial statements. This real estate portfolio generates an annual rental yield of around 7%.

In addition to the existing portfolio, the BBI AG has contractually secured further lucrative real estate in good time.

These properties of the BBI AG, which are presently at the planning stage, involve capital expen-diture amounting to approx. EUR 153m and comprise a total of 17 specialist retailer centres located in urban centres and fast-growth regional centres throughout Germany. Ten of these properties have already been notarised and letters of intent have been signed for the remaining seven pro-jects. Delivery to the BBI AG will take place after the respective completion of the real estate and the fulfi lment of the terms of the contracts. The fi rst properties will be transferred to the BBI portfolio as early as November 2007, and as such, an initial rental yield will be generated in the current fi nancial year.

Composition of branches according to tenants’ structure

82.2% retail trade

4.5% commercial utilisation

0.9% residential utilisation

6.9% restaurants et al.

5.5% other

85% over 10 years2% 5 – 10 years

7% 1 – 5 years

6% below 12 months

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Specialist retail centres

Self-service market Pfaffenhofen/Ilm

Location: Pfaffenhofen/Ilm

Year of acquisition: 2007

Type of real estate: specialist retail centre

sales area: 1,604 m2

completion: 2007

Acquisition price approx. EUR 3.2mincl. ancillary costs:

Tenants: Plus, Fristo amongst others, regional tenants

Term of lease contract: over 10 years

Specialist retail stores

Location: Germany

Year of acquisition: 2006/2007

Type of real estate: 15 specialist retailers

sales area: 87,817 m2

Year of construction: 1996 – 2006

Acquisition price approx. EUR 97m incl. ancillary costs:

Tenants: one tenant for all the locations

Term of lease contract: 20 years

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Historical portfolio

Ingolstadt

Type of real estate:

12 residential and commercial buildings each withrestaurant or catering business as well as offi ce and living space

1 piece of land encumbered with a hereditory building right

1 brewery Restaurant Weißbräuhaus,Ingolstadt

Neuburg/Donau

Restaurant Voilà, Neuburg/Donau

Donauwörth

Restaurant Poseidon, Donauwörth

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Investment projects

Bavaria-Westfalia

LoI for real estate portfolio with six planned specialist retailer centres

Location: middle market centres in Bavaria and NRW

LoI: I/2007

Planned completion/transfer IV/2007 – IV/2008

Sales area: approx. 15,420 m2

Average term of lease: approx. 14 years

Acquisition price incl. ancillary costs: approx. EUR 29m

Self-service market Pfaffenhofen/Ilm

LoI for a planned self-service store

Location: Pfaffenhofen/Ilm

LoI: I/2007

Planned completion/transfer I/2008


Term of lease contract: approx. 20 years


Bavaria

acquisition of ten planned specialist retailers

Location: Bavarian middle market centres

Purchase contract: IV/2006

Planned completion: IV/2007 - III/2009

Planned transfer to BBI AG: I/2008 – III/2010


Average term of lease: approx. 14 years


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“The possibilities are manifold –the goal is clear.

Our know-how willenhance your capital assets.”

A. Economic Review 44

I. Presentation of business operations

and respective overall conditions 44

a. Corporate structure and business operations 44

b. Employees 45

c. Development of the real estate portfolio 46

d. Market and competitive environment 47

e. Business objectives and strategy 49

II. Notes to trading results and analysis of results of operations,

net assets and fi nancial position in accordance with IFRS

for Consolidated Financial Statements 50

a. Results of operations 50

b. Net assets 52

c. Financial position 55

B. Events after the balance sheet date 56

C. Risk Report and Outlook 57

a. Risks in the real estate segment 57

b. Opportunities in the real estate segment 58

c. Risks and opportunities in the beverages segment 59

d. Outlook 59

D. Further information 61

a. Remuneration received by the Management Board 61

b. Authority of the Management Board to issue new shares

or to repurchase their own shares 61

c. Further information in accordance with § 315 para. 4 HGB*

(*German Commercial Code) 61

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I. Presentation of business operations and respective overall conditions

a. Corporate structure and business operations

The parent company of the BBI Group is the BBI Bürgerliches Brauhaus Immobilien AG (for-merly Bürgerliches Brauhaus Ingolstadt AG). This company serves as the holding company and it has a 100% interest in Herrnbräu GmbH & Co. KG (referred to as “Herrnbräu” or “brewery” for short) as a general partner through its subsidiary Herrnbräu Geschäftsführung GmbH and in its own function as a limited partner. Among the companies in the BBI Group are the Herrnbräu subsidiaries and the 40% shareholding of Herrnbräu in Tre Effe s.r.l. with its head-quarters in Italy, which likewise contributes to the operational group result. There are three more subsidiaries of Herrnbräu that are in the BBI Group but they are, however, of no great signifi cance.

A. Economic Review

BBI AG

parent company3 employees

Herrnbräu

business management GmbH

general partner limited partner

Herrnbräu

GmbH & Co. KG90 employees

Tre Effe s.r.l. (Forli, Italia)

100%

40%

45

The core business of the BBI Group changed signifi cantly in the expired fi scal year 2006. In the past, business operations still focused on the manufacture, sales and marketing of beverages, especially beer and soft drinks, whereas today the main business operations comprise the acquisition, letting/leasing and asset management of commercial real estate. These activities have now been bundled in the parent company BBI Bürgerliches Brauhaus Immobilien AG. The change in business operations was triggered by the change in the shareholders´ structure. The Bayerische Landesbank, Munich, hitherto majority shareholder, sold its 94.45% shareholding in May 2006 to the VIB Vermögen AG, a listed real estate holding company with its headquar-ters in Neuburg/Donau. As a result, the fi nancial year 2006 was characterised by a strategic reorientation.

The change in strategy was made possible through the resolutions passed by the General Meeting on 24th August 2006. The name of the company was accordingly changed from BBI Bürgerliches Brauhaus Ingolstadt AG to BBI Bürgerliches Brauhaus Immobilien AG. In addition, the business purpose as stated in the Articles of Association was redefi ned: “The object of the company is the acquisition and administration of its own assets, in particular of real estate and investments in other enterprises and companies. The company does not carry out any activities that require state approval. The company can implement the object of the company itself or through subsidiary or associated companies.”

b. Employees

On account of the reorientation of operational business with a focus on commercial real estate, Mr Peter Schropp was appointed to the Board of the BBI AG as a new member in November 2006. From November to December 2006, the company was represented by two executive managers. Executive manager Claus Paulus left the company at the turn of the year 2006/2007 and went into retirement. Since then, Mr Peter Schropp has been the sole executive manager of the BBI AG. He is supported by Mr Franz Katzenbogen, Prokurist*, who is primarily responsible for Herrnbräu GmbH & Co. KG, and by an assistant to the Management Board. A specialist in real estate, who joined the BBI AG at the end of the year, rounds off the number of staff currently employed. In view of the growth in operational business during the current fi nancial year 2007, the BBI AG is planning to increase this number of staff by one further employee.

As the retired CEO had also been responsible for the beverages segment, Mr Gerhard Bonschab was appointed as the new executive manager of sales and marketing at Herrnbräu as of 1st January 2007. In addition, Mr Franz Katzenbogen has been registered in the German Handels-register** as executive manager of Herrnbräu. In the fi nancial year 2006, Herrnbräu employed an average of 91 employees. The average total number of employees in the BBI Group was 92 employees as compared with 96 employees in the previous year.

Group Management Report

*authorised representative of the company

**Register of Companies

46



c. Development of the real estate portfolio

The complete real estate portfolio is held by the BBI AG. It is subdivided into historical portfo-lio, i.e. properties that had originally been owned by the brewery, and new investments that were made in the fi nancial year 2006 when business operations were started, following the change in strategic orientation. At the year-end the BBI AG owned 16 properties classifi ed as previous holdings and ten properties that had been newly acquired in 2006. The transition of benefi t and costs of the new real estate took place on 31st December 2006, so that in the expi-red fi scal year there was still no rental income resulting from it. All of the real estate held in the portfolio is at present fully let or, respectively, under lease, so that the real estate holdings of the BBI AG show a zero vacancy rate. At the end of the year 2006, the total real estate of the BBI Group comprised a book value of approx. EUR 83m at an average rental yield of around 7%p. a. The lettable area amounted to 85,077 square metres.

Previous holdings

At the beginning of the year 2006, the “Auwaldsee” property (Ingolstadt) underwent con-siderable alterations comprising precautionary fi re provisions in the whole of the property and also the refurbishment and redesign of all the interior rooms and of the exterior. The premises in the “Sudpfanne” property (Ingolstadt) were also renovated in order to meet the requirements of a modern brewery pub-restaurant. The structural alteration work comprised renewing the roof and redesigning the area used by guests. The investment volume for the two renovation measures amounted to approx. EUR 1.0m.In June 2006, the Herrnbräu transferred the areas of land together with the brewery and administration buildings to the BBI AG. Since January 2007, the brewery has leased the land from the BBI AG. From now on as a result of this measure, the real estate of the BBI Group is completely bundled in the holding company.For strategic reasons, the Reichertshofen real estate, the agricultural area along the Buxheimer Weg in Ingolstadt and also the Steinbräu (Gaimersheim) and Paradeplatz (Ingolstadt) proper-ties were all sold. With reference to the latter two properties, the transfer of ownership will take place in the fi nancial year 2007. The company achieved a profi t of EUR 2.4m (sale price EUR 2.5m) from the sale of the fi rst two properties mentioned. The profi t was fully deducted from the renovation costs and the acquisition costs for new properties in accordance with § 6b EStG* and thus booked as a non-operating result.

New investments and letters of intent

In December 2006, the BBI AG acquired ten specialist retail stores as part of a basically nego-tiated total parcel of 15 specialist retail stores for a purchase price of EUR 56.3m. The title to the remaining fi ve specialist retail stores was transferred to the BBI AG in January 2007 (also see ‘events after the balance sheet date’), and as such, total capital expenditure, including

*Income Tax Act

47

costs related to the acquisition, amounted to EUR 97m. The total sales area of the 15 specialist retail stores amounts to approx. 87,800 square metres and is divided up into rentable areas of between approx. 5,100sqm and approx. 6,800sqm per specialist retail store. The rental yield in relation to the acquisition costs amounts to approx. 6.7% p. a. and will have an effect on the sales and earnings situation for the fi rst time in the fi nancial year that has just begun. Triple-net lease contracts with a term of 20 years were concluded for the entire specialist re-tail stores acquired. All of the specialist retail stores are operated by one tenant of fi rst-class standing.

Apart from this, an agreement was reached in November 2006 between a regionally signifi cant project developer with longstanding experience in the market and the BBI AG, with regard to the latter’s acquisition of the so-called Bavaria portfolio. The portfolio concerned comprises ten specialist retail centres, currently at the planning stage and located throughout South Bavaria. These are to be acquired after completion and letting. The acquisition price including costs related to the acquisition is expected to be around EUR 110m. The rentable area of the planned properties will probably amount to a total of approx. 62,400 square metres, while the rentable areas per property will vary between approx. 1,200sqm and 12,000sqm. The delivery date for half of these properties is expected to be in the year 2008. The average lease duration of all of the planned properties will be approx. 14 years. The commercially signifi cant tenants concerned (the so-called ‘anchor tenants’) are, for the main part, chain retailers providing articles required for the short, medium and long term.

d. Market and competitive environment

The fi nancial year 2006 was characterised by a positive business environment. Macroecono-mic development, with a 2.7% growth in gross domestic product, turned out to be higher than had initially been forecast. As such, economic growth was considerably above the level of the years 2004 (1.6%) and 2005 (0.9%). In contrast to the previous years, the positive development in the year 2006 was not only pillared by exports, which once again gained in double-digit percentage last year, but also through revitalised domestic economic activity, which was accompanied by a rising demand for retail and commercial real estate. In the medium-term, however, this might lead to a further increase in purchase prices for real estate and also to an increase in rental prices. Apart from the macroeconomic situation, there have, however, been other extraordinary ef-fects that have been responsible for the positive development in the real estate branch. Two examples of this are the publicised abolition of the homebuyer’s allowance and the impact made by the special economic situation caused by a 3% increase in VAT from 1st January 2007. Moreover, the discussion about the introduction of “German REITS” has had a considerably stimulating effect on the market development of commercial real estate.While rental and purchase prices in other European countries have been rising considerably over the past few years, more and more foreign investors have recognised the numerous lu-crative opportunities for investment in Germany. As such, the activities of foreign investors, for example from Great Britain, the USA or Australia, have been responsible for more than


48



two thirds of the transactions. One important reason for this, among others, is that purchase prices for real estate in Germany are still attractive. In the commercial real estate market alone, capital expenditure in the year 2006 rose appreciably compared with the previous year. Depending on the source, the total volume of turnover in the commercial real estate segment has been estimated at between EUR 50bn and EUR 55bn.

Volume of transactions for specialist retailers/specialist retailer centres 1st half-year 2006 based on nationality of purchaser | Basis: EUR 1.4bn

Correspondingly, retail real estate experienced an above average increase to between EUR 15.5bn and EUR 18.5bn (previous year around EUR 6.5bn). This represents an all-time high for the German real estate market. In this respect, the Karstadt portfolio, which was sold in the year 2006 for a sales price of EUR 4.5bn constituted by far the largest individual item. On account of signifi cantly increased demand, especially among foreign investors, the average initial net rate of return has decreased. In Germany’s fi ve real estate strongholds (Berlin, Düsseldorf, Frankfurt am Main, Hamburg and Munich) the average top return for specialist retailer centres was around 6.15% p. a., and only about 5.7% p. a. in the case of individual spe-cialist retailers. Even outside the urban centres, rising prices for retail real estate have been recorded. While, in the year 2005, it was still possible to acquire retail centres in medium-sized towns for an average factor of around twelve annual net rental payments excluding utilities, this factor has increased by more than two annual net rental payments excluding utilities to between about 14 and 14.5. The yields that can be achieved, with reference to the purchase price, drop accordingly to below 7% p. a. on average.Likewise, when new real estate is being planned, the increased costs have become noticeable. As such, construction costs for retail real estate have risen to a factor of around 13 annual net rental payments excluding utilities. According to information from the Federal Offi ce of Statistics, costs will continue to rise in the fi nancial year 2007. Building costs for residential property, for example, have risen on account of the increase in VAT and higher prices for en-ergy and materials in April 2007 by more than 7% compared with the previous year.In a dynamic market environment, prudent investment policy and selective choice of location are decisive factors for success. According to estimations made by the Prognos AG, clear dy-namic growth exists especially in the regions around Ingolstadt and Regensburg: regions that have up to now been the core areas of the BBI AG. This has a positive effect on the portfolio of the BBI AG and offers further attractive market opportunities in future:

56% UK

2% others2% USA

17% Australia

2% Austria

9% global

10% Germany

2% Denmark

© Jones Lang LaSalle GmbH, August 2006

49

Dynamic growth in Germany

Basically, economic growth has also had a positive effect on “beverages”, the company’s second business sector. Regional factors can, in particular, be added to this effect, i.e. an increase in population around Ingolstadt, which has brought about an increased con-sumption of beverages. On the other hand, changes in consumer buying habits have been responsible for the dwindling demand in the respective market and as such, for an incre-asingly competitive environment. Accordingly, the beverages market will be characterised by an intensive process of concentration in future, too.

e. Business objectives and strategy

In the course of its strategic reorientation, the BBI Group will concentrate in future on the expansion of its real estate portfolio. The core competence will be the acquisition and asset management of commercial real estate in in the consumer-oriented segment, in order to build up a portfolio of approx. EUR 750m within the next fi ve years.

As the demand for high investment volumes of over EUR 100m is frequent among fo-reign investors, the BBI AG is able to profi t from its niche position, with its focus on investments of between EUR 5m and EUR 35m per property or, respectively, EUR 35m to EUR 100m per real estate portfolio. When implementing its fi nancing strategy, the BBI AG has so far followed the policy of around 40% equity, while the remaining 60% has been co-vered by long-term bank loans. The fi nancing strategy for the future will especially depend on whether or not the BBI AG applies for REIT status.

Compared with Germany as a whole, regions with: ...

the highest dynamic growth (26)very high dynamic growth (29)high dynamic growth (69)medium dynamic growth (142)low dynamic growth (137)very low dynamic growth (22)the lowest dynamic growth (14)

© Prognos AG 2007


50



The BBI AG focuses its investments primarily on fast-growing urban areas outside crowded cities. In particular, these are towns that show sustainable positive economic development and which have between 50,000 and 200,000 inhabitants. In order to spread risks and maximi-se yields, the BBI AG intends to invest throughout Germany and also investigate opportunities for investment in foreign regions near the German border. On account of the company’s his-tory, the regional concentration of the BBI AG real estate holdings is still at present in South Germany, which has been the strongest growth region in Germany for years.

With regard to the composition of the real estate portfolio, too, the BBI AG aims at achieving a balanced mix of branches and properties. As such, besides specialist retail centres, the compa-ny foresees the acquisition of business premises and shopping centres. Furthermore, logistics real estate, likewise consumer-oriented, will also contribute to spreading the risk of the types of property. Among the preferred branches are the food industry, textiles/shoes, drugstores and specialist retailers for electrical, household, garden and DIY products. In this respect, the BBI AG gives priority to tenants with established brands and products, for example Lidl, Aldi, Edeka, Rewe, Plus, Takko, Kik, Deichmann, Drogerie Müller or dm.

In the competition for lucrative commercial real estate, both accurate knowledge of the mar-ket and the existing, extensive network of the BBI Bürgerliches Brauhaus AG’s management play a decisive role. This position opens up competitive advantages that will continue to make it possible for the company to profi t from the opportunities available in the market. The stra-tegic option of transforming the BBI AG into a German-REIT will be thoroughly assessed by the Management Board during the current year.

In the beverages segment, the BBI Group will continue to consolidate its activity in the regi-onal market through its subsidiary Herrnbräu. Furthermore, the company intends to expand its business into newly evolving markets such as Italy, in order to avoid being too strongly dependent on regional markets and consumer buying habits. In addition, Herrnbräu will most probably focus on selling beverages produced in-house, while at the same time reducing trade goods, which show a weaker margin. This should help to improve the earnings power of Herrnbräu.

II. Notes to trading results and analysis of results of operations, net assets

and fi nancial position in accordance with IFRS for Consolidated Financial

Statements

a. Results of operations

In view of the fact that the BBI AG will not achieve signifi cant sales from rent and lease until the fi nancial year 2007, the result of Group operations in 2006 is still particularly characterised by the business operations of the brewery. Accordingly, Group revenues ascertained according to IFRS amounted to EUR 15.46m, which has remained stable when compared with the same period in the previous year (EUR 15.44m). Real estate operations contributed revenues amoun-

51

ting to EUR 1.44m in the fi nancial year 2006. The beverages segment generated consolidated revenues amounting to EUR 14.03m.Other operational income show a signifi cant increase in comparison with the previous year, having risen from EUR 0.35m to EUR 2.76m. For the main part, this refl ects the hidden reser-ves realised as a result of the sales of the Reichertshofen real estate and the agricultural land along the Buxheimer Weg in Ingolstadt (profi t of approx. EUR 2.4m).Expenditure on material was slightly lower at EUR 5.02m (previous year: EUR 5.07m), which was caused, among other things, by the slight drop in sales in the brewery business. In the fi nancial year 2006, at 212 thousand hectolitres this was 3.4thl less or, respectively, 1.6% below that of the previous year. In total, the beverages produced in-house (Herrnbräu beers +1.8% and Bernadett Brunnen AfG -3.2%) fell slightly by -0.5%. Sales of trade goods amounted to 26thl (previous year: 29thl). Herrnbräu sales in the trade segment went up considerably with an increase of 2.6%. Exports, too, grew once again by 14.6%.Expenditure on material in the real estate segment amounted to EUR 0.35m (previous year: EUR 0.34m) and resulted, among other things, from repairs and prepayment of ancillary costs. There was a minor increase in personnel expenditure, which rose from EUR 4.87m to EUR 5.13m in the Group. This was mainly caused by allocation to reserves for semi-retirement. Personnel expenditure relating to the real estate segment amounted to EUR 0.23m (previous year: EUR 0.21m).Depreciation also remained stable at EUR 2.42m (previous year: EUR 2.45m). In particular, de-precation of long-term assets amounted to EUR 1.99m in respect of the Herrnbräu subsidiary. In the real estate segment, depreciation amounting to EUR 0.43m was carried out as planned on the historical portfolio. Other operating expenses increased from EUR 2.75m to EUR 3.48m and consist mainly of lea-sing costs, expenses for sales and marketing and also administration costs. Other operating expenses in the real estate segment amounted to EUR 0.33m (previous year: EUR 0.10m). Earnings before Interest and Taxes (EBIT) for the BBI Group amount to EUR 2.19m, which is a considerable increase when compared with the previous year (EUR 0.70m). The signifi -cant rise is to be attributed in particular to the strategic sale of previous holdings, through which hidden reserves were realised. Accordingly, the real estate segment showed an EBIT of EUR 2.32m, while the segment EBIT for the beverages sector was negative at EUR -0.15m.The fi nancial result amounted to EUR -0.58m (previous year: EUR -0.56m). The liabilities taken up at the end of the year for the expansion of the real estate segment had only a minor effect, but will lead to signifi cantly increasing interest costs in the coming years. The BBI Group ge-nerated Earnings before Taxes (EBT) amounting to EUR 1.62m (previous year: EUR 0.14m)After deduction of income taxes amounting to EUR 0.69m, the Group net income for the year amounted to EUR 0.92m (previous year: EUR 0.07m). This corresponds to earnings per share of EUR 0.52 (previous year: EUR 0.04). The net loss for the year of the Annual Financial Statement of the BBI AG, which is relevant for the distribution of dividends, was drawn up in accordance with the German Commercial Code and amounted to EUR -0.41m. As such, the Management Board recommends that the General Meeting carries this net loss for the year forward to new account.


52



b. Net assets

The strategic reorientation of the BBI Group as a real estate company is clearly visible in the consolidated balance sheet. As such, the balance sheet total increased from EUR 29.00m to EUR 104.37m at the end of the fi nancial year 2006. This was made possible through the resolu-tions passed by the General Meeting on 24th August 2006:

1. The authorised capital of the company was increased from EUR 1,533,875.64 by EUR 26,124.36 through the conversion of retained earnings into authorised capital, bringing the total authorised capital up to EUR 1,560,000.00. The capital increase was implemented without the issue of new shares.

2. The authorised capital of the company amounting to EUR 1,560,000.00 divided into 30,000 individual shares was redivided through a share split at the rate of 1:52.

The authorised capital is now divided into 1,560,000 individual bearer shares. The BBI Bürgerliches Brauhaus AG has no other class of stock besides this.

3. Exchange of invalidated nominal value shares and chartering in a global certifi cate. The shareholders were called three times by means of a public notice procedure in the electronic German Federal Gazette and in the Börsenzeitung to submit their old invalidated share certifi cates together with a talon to the Bayerische Landesbank, Munich, by 6th February 2007 at the latest, at the same time warning them of the cancellation of any shares not submitted, in order to have them exchanged for new no-par individual shares. In the place of the invalidated share certifi cates, benefi ciaries received co-ownership shares in an all-share certifi cate held by the Clearstream Banking AG.

4. Implementation of a capital increase for cash contributions. The company successfully implemented the capital increase that was resolved in the General Meeting. A total of 3,640,000 individual bearer shares at a price of EUR 12.75 per share were placed within the scope of a completely private placement. Accordingly, the authorised capital of the BBI AG has increased from EUR 1,560,000 to EUR 5,200,000 nominal capital. The capital increase was entered in the companies register on 12th December 2006. At the same time, gross proceeds of the new issue amounting to EUR 46,41m fl owed to the company. Approx. 80% of the new shares, which have been entitled to profi t-sharing since 1st January 2006, were placed with home and foreign institutional investors. The remaining 20% of shares were subscribed to by existing shareholders, private investors and members of the company. Trading in subscription rights of existing shareholders was excluded. After the capital increase had been placed, the former majority shareholder VIB Vermögen AG still held 28.49% of the shares on the set date.

On account of the capital measures referred to, the equity capital in the balance sheet incre-ased from EUR 10.30m to EUR 63.35m. This corresponds to an equity ratio of 60.7% (previous year: 35.5%). As already explained above, just before the end of the year the fresh equity capital

53

was partly used for the acquisition of ten of a total of 15 negotiated specialist retail stores. The purchase price for this transaction amounted to EUR 56.3m. It was also fi nanced through a long-term bank loan from the Eurohypo AG of EUR 48m. This loan is being released in tranches, the fi rst of which amounting to EUR 16.3m was paid out in Decem-ber 2006. The interest rate on this loan is fi xed over a period of ten years and the loan will be amortised in annual repayments from August 2007. On account of this fi nancing, long-term fi nancial liabilities have increased from EUR 5.79m to EUR 23.54m. Altogether the long-term debt of the BBI Group amounts to EUR 33.26m (previous year: EUR 10.91m). Deferred tax liabilities amounting to EUR 8.74m (previous year: EUR 3.99m) are also inclu-ded in this sum. These have increased on account of hidden reserves being realised within the scope of the reclassifi cation of the brewery building in the BBI AG.

Equity capital in the balance sheet and equity ratio 2005 and 2006

retained earnings and balance sheet profi t

cash fl ow hedges and revaluation reserve

capital reserve

subscribed capital 2005 2006

equity ratio in %

35.5

60.7

10

20

30

40

50

60

43.46

5.2

3.65

12.56

8.88

1.53

million EUR


54



The asset side has also changed signifi cantly on account of the focus on the real estate busi-ness. As such, long-term assets increased to a total of EUR 93.33m (previous year: 24.85m). The item reported as ”real estate held as fi nancial investment” increased from EUR 12.52m to EUR 76.53m. The increase is due to the fi rst ten specialist retailers with a purchase price of EUR 56.3m being carried as assets and also on account of the reclassifi cation of the brewery building with a book value of EUR 4.29m.

Development of long-term assets

In the fi nancial year 2006, Herrnbräu invested a total of EUR 2.25m (previous year: EUR 2.86m) in fi xed assets. This was subdivided into investments for tangible assets amounting to EUR 1.16mand for sales fi nancing amounting to EUR 1.10m. Herrnbräu has strengthened its competitive-ness through these investments and provided itself with a basis for further increases in sales in future.

Current assets increased from EUR 4.15m to EUR 11.05m in the expired fi scal year. While the balance sheet items receivables and inventories remained at about the same level as the pre-vious year, liquid assets rose from EUR 0.08m to EUR 6.49m. These are the liquid assets still remaining at the year-end from the capital increase that took place in November 2006, which were invested on an interest-bearing basis.

2005 2006

20

40

60

80

24.85

93.33

million EUR

100

55

c. Financial position

The capital increase completed in December 2006 had a signifi cantly positive infl uence on liquidity and as such, the BBI Group had suffi cient liquid funds at the end of the year. Through the capital increase, the company generated gross proceeds from the issue amounting toEUR 46.41m. Combined with the fi rst tranche of the loan which was drawn on to the amount of EUR 16.3m, it was possible to make investments for new real estate involving total capital expenditure of EUR 58.40m.

The cash fl ow from operating activities of the Group for the fi nancial year 2006 was also distinctly positive at EUR 4.49m (previous year: EUR 2.30m). In this respect, the BBI AG con-tributed signifi cantly to this increase with EUR 2.90m (previous year: EUR 0.82m). The cash fl ow from operating activities of Herrnbräu amounted to EUR 1.51m in the fi nancial year 2006 (previous year: 1.93m).


56



B. Events after the balance sheet date

At the beginning of the year 2007, the BBI AG acquired the remaining fi ve specialist retailers that were part of a parcel of 15. The total price for the acquisition of the 15 specialist retailers including attendant expenses amounted to about EUR 97m. All of the properties were let as from 1st January or, respectively, 1st February 2007 to one tenant of fi rst-class standing who has signed a triple-net rental contract in each case for a period of 20 years. The resulting rental income will make a considerable contribution to the company’s sales and earnings position in future.

In order to fi nance the new real estate, the BBI AG drew on the second and last tranche of the bank loan amounting to a total of EUR 48m, whereby the long-term fi nancial liabilities have increased accordingly after the balance sheet date. At the same time, short-term bridge fi nancing amounting to EUR 19m was approved for the BBI AG, of which the company drew EUR 5m in January 2007. A complete repayment of this loan is to be made in the current year through the planned capital increase.

In February 2007, a self-service store was acquired in Pfaffenhofen/Ilm. There is a lettable area of 1,604 square metres and the acquisition price including attendant expenses amounted to approx. EUR 3.2m. The Plus and Fristo companies are among the tenants. The duration of the leases exceeds ten years on average. The total amount of newly acquired real estate has accordingly risen to 16 properties, which will lead to additional rental yield from the fi nancial year 2007.

Payments ensuing from the sales of the Steinbräu (Gaimersheim) and Paradeplatz (Ingolstadt) properties amounting to EUR 1.15m were received in January and March 2007. The income from the sales of the properties is to be reinvested in new real estate during the current year.

In March 2007, a letter of intent was signed for the acquisition of a 23,500sqm piece of com-mercial land including a planned commercial property in Pfaffenhofen / Ilm. Capital expen-diture amounts to around EUR 13.5m. The start of construction on a self-service department store with a lettable area of 6,700sqm has been planned for the fi rst half of the year 2007. The BBI AG will generate an annual rental yield of around EUR 0.9m from the long-term lease that has already been concluded with a tenant of fi rst-class standing.

A further letter of intent for the acquisition of a portfolio consisting of six planned specialist retailer centres in Bavaria (5 properties) and North Rhine-Westphalia (1 property) was likewise signed in March 2007. The purchase price including related costs is expected to amount to EUR 29.1m. The sales area, which for the most part has been let to reputable anchor tenants, comprises a total of approx. 15,420sqm. Delivery of the specialist retailer centres to the BBI AG is expected to take place between November 2007 and November 2008, as soon as the conditi-ons of the contract have been fulfi lled by the project developer. The BBI AG expects to achieve average market rental yields from the end of the year 2007.

There were no further events that would have had a signifi cant effect on the earnings situati-on, fi nancial position or net assets of the BBI Group after the balance sheet date.

57

Risk management

In order to minimise risks, the BBI AG has installed a professional early recognition and ma-nagement system which ensures that the Management Board is informed of any signifi cant potential risks at an early stage and can immediately introduce appropriate countermeasures. The subsidiary companies are also integrated in the system of identifying risks at an early stage and in the risk management system.

a. Risks in the real estate segment

Credit and liquidity risks principally occur through the loss of an important tenant or through a change for the worse with regards the credit-worthiness of such a tenant. However, this risk is guarded against by carrying out a thorough due diligence before the lease contract is signed. Moreover, when acquiring additional real estate, the BBI AG makes sure that there are good possibilities for other utilisation so that potential follow-up tenants can be found promptly, should this prove necessary. In addition, the risk of loss of rent, resulting from the sudden termination of a lease contract on the part of the tenant, is reduced through the conclusion of long-term lease contracts. At present, over 80% of all the lease contracts are so-called triple-net lease contracts, which provide the rental yields of the company with long-term security. Due to the fact that the tenants of the BBI AG are always well-established companies, the risk of rental loss in the case of a general economic recession, are likewise minimised. Moreover, the BBI AG curbs risks by widely spreading the mixture of branches and through regional diversifi cation.

The BBI AG is exposed to a potential risk through damage to or destruction of real estate. An adverse effect on the value of the company on account of damage to property, accidents or similar occurrences is guarded against through all of the property in the portfolio being suffi ciently covered by insurance. To the extent to which building development is being car-ried out within the scope of projects in the case of lease contracts that have already been acquired, the BBI AG minimises cost risk by concluding general contractor agreements during the construction phase.

For the fi nancing of investments, the BBI AG aims at fi xing favourable terms for loans over a period of ten years or longer as quickly as possible. Agreeing on a fi xed interest rate for bank loans over longer periods at the point of time the fi xed interest rate expires, can pose a risk for the BBI AG in the case of a high increase in interest rates. The company is partly covered against the risks of a change in interest rates through interest rate swaps, carried out in order to optimise the terms for bank loans. In the area of short-term fi nancing, developments in the market are continually monitored, so that measures to secure fi nancing terms in line with the market can be introduced, should this become necessary.

A further risk is posed by the concentration of previous holdings of real estate in the region of Ingolstadt. This could present a higher risk in the case of negative regional development. However, this risk is reduced by the management’s longstanding experience and particularly through knowledge of the regional market. In addition, the risk is further diminished by the BBI AG’s strategy for expanding investment into the whole of Germany.

C. Risk Report and Outlook


58



At present there is a concentration of risk on account of a commercially signifi cant tenant who operates 15 of the 16 specialist retailers that are currently being held in the portfolio. However, as there are plans to expand the real estate portfolio, this dependence will swiftly be signifi cantly minimised, because the percentage share of this rental income of the total portfolio will then be reduced. In addition, the fi nancially-strong tenant concerned has signed long-term leases that exclude termination in the short-term.

In the estimation of the Management Board, no risks have been identifi ed at the end of the 2006 fi nancial year that might have a lasting or signifi cant impact on the results of operations, net assets or fi nancial position of the parent company of the BBI Group.

b. Opportunities in the real estate segment

In the real estate segment in particular, risks must be seen alongside signifi cant opportunities. Through the implementation of a further capital increase, an opportunity could open up for the BBI AG to integrate additional property into its portfolio. Investments in other lucrative commercial real estate would considerably help the BBI AG to increase sales and earnings in future and thus accelerate the company’s high-yield growth.

Access to fresh equity capital would be additionally optimised on the possibility of converting the company into a German-REIT. Moreover, the new legislation provides attractive tax bene-fi ts, making it possible for profi ts to be maximised at company level, which is an advantage for shareholders. Apart from this, within the scope of the new legislation, numerous compa-nies will most likely sell existing real estate holdings that are not part of their core business. Consequently, the Management Board will closely examine the concept of converting the BBI AG into a German REIT.

Through the dynamically-developing market for commercial real estate, a potential for incre-asing the value of the current portfolio is opening up that could have a positive effect on the total value of the company. In addition, there is the possibility of realising hidden reserves through opportune sales, thus generating higher profi ts. The fi rst-class locations of the pro-perties in the strongest-growing regions of Germany can also contribute to an increase in the value of the real estate portfolio.

By focusing on investment volumes of between EUR 5m and EUR 35m per property or, re-spectively, of EUR 30m to EUR 100m per portfolio, the BBI AG has positioned itself in a highly attractive market segment. At the same time, the positive market development in the segment for retail and commercial real estate is leading to an increasing number of lucrative invest-ment opportunities. Through longstanding experience and knowledge of the market and also the management’s comprehensive network, the BBI AG is in a position to identify and exploit market opportunities at an earlier stage and at better terms than, for example, foreign inves-tors are able to. This can have a positive effect on the yield and results of the company.

59

c. Risks and opportunities in the beverages segment

Among the signifi cant risks that Herrnbräu is exposed to are, on the one hand, a dependency on the market for raw materials and its price development, and on the other hand, possible loss on receivables if customers do not fulfi l their fi nancial commitments. Financing that is necessary for the brewery, such as beer supply rights, for example, could thus be endangered. A shortage of raw materials can be excluded for each respective current year, as Herrnbräu safeguards itself contractually at an early stage.

A further risk exists on account of a market and competitive environment that is becoming tougher all the time. Accordingly, the per capita consumption of beer or mineral water could continue to decrease on account of changed consumer buying habits, which could, at the same time, cause a stronger price war to ensue that would have a negative effect on the tur-nover and results of the enterprise. So as to minimise this risk, Herrnbräu has entered newly emerging markets, for example Italy, at an early stage in order to reduce its dependency on regional markets.

In the estimation of the Management Board, no risks have been identifi ed at the end of the 2006 fi nancial year that might have a lasting or signifi cant impact on the results of operations, net assets or fi nancial position of Herrnbräu.

When considering the opportunities, it is an established fact that Herrnbräu can profi t in fu-ture by being located in one of the strongest-growing regions in Germany. Not only economic growth but also the probable rise in population resulting from it in the region can lead to increased sales of Herrnbräu products. This would have a positive infl uence on the turnover and results of the subsidiary.

d. Outlook

In future, the BBI AG will accelerate the new core business “acquisition and assets manage-ment of commercial real estate in consumer-oriented sectors”. The company created a solid foundation in this respect in the year 2006, which will contribute to increasing rental income in the current fi nancial year 2007. Accordingly, the book value of the company’s real estate portfolio at the end of March amounted to approx. EUR 130m at a rental yield of about 7% p. a. Further investments in attractive commercial real estate are expected during the current year. In this respect, the BBI AG secured agreements in November 2006 for the acquisition of ten further specialist retailers involving capital expenditure amounting to about EUR 110m (Bavaria portfolio) and in March 2007 for six specialist retailers involving capital expenditure of approx. EUR 29.1m (Bavaria-Westphalia portfolio). In addition, the BBI AG signed a letter of intent for a self-service department store involving capital expenditure of EUR 13.5m in March 2007. As such, the planned properties add up to a total of around EUR 153m. These properties are at present being built or, respectively, construction on them will be starting soon. Delivery of the fi rst properties to the BBI AG is expected to take place during the fi nancial year 2007 and from then on lead to a further increase in rental yield.


60



Furthermore, the Management Board will closely investigate converting the BBI AG into a German-REIT and, if applicable, request the General Meeting to take a vote on the resolutions required for the conversion.

In order to expand business activities, the BBI AG is planning a further capital increase for cash contributions, which is expected to take place in the second half of the year 2007. The BBI AG intends to completely invest the proceeds of this capital increase in new commercial real estate and thus accelerate operational business in the real estate segment beyond the fi nancial year 2007.

The Management Board also foresees a positive development for the Herrnbräu subsidiary. In this respect, the fi rst two months of the fi nancial year 2007 have shown slight growth (sales approx. 0.2% higher than for the same period in the previous year). While sales for in-house production have developed very well, sales for trade goods, which have a smaller margin, have tended to drop. In the current year, the management will particularly focus on further optimising costs and increasing market penetration. In this respect, both distribution and the acquisition of new customers is to be improved.

All in all, therefore, the Management Board is confi dent that growth in the fi nancial year 2007 and also in the years to follow can be accelerated dynamically and that the BBI AG can be established as a high-yield, substantial real estate company in Germany.

61

a. Remuneration received by the Management Board

In addition to a fi xed remuneration, the Management Board also receives a variable sum that is determined by the operational result of the company.

b. Authority of the Management Board to issue new shares or to

repurchase their own shares

The Management Board’s authority to issue new shares or to repurchase their own shares no longer exists, in accordance with a resolution passed by the General Meeting. The Manage-ment Board has partly made use of its authorisation to issue shares for cash contributions, which was resolved by the General Meeting on 24th August 2006. In as much as the authori-sation was not fully utilised, it has become invalid through time lapse.

c. Further information in accordance with § 315 para. 4 HGB*

Supplementary to the provisions of the German Stock Companies Act, the composition of the Management Board and a respective resolution in accordance with the Articles of Association of the parent company are defi ned as follows:

1. The Management Board is composed of one or more persons. The precise number of members on the Management Board is determined by the Supervisory Board through the respective appointment or revocation of the appointment of members to the Management Board. The Supervisory Board can appoint a chairperson of the Management Board and also a deputy chairperson of the Management Board.

2. The members of the Management Board are to manage the business pursuant to legal requirements, the Articles of Association and the rules of procedure.

3. The resolutions of the members of the Management Board are passed on attaining a simple majority of the votes. In the case of a tie vote, the vote of the chairperson of the Management Board, or in the case of his/her absence, the vote of the deputy chairperson of the Management Board will be decisive in as much as this is invoked by them.

The company is represented:

1. if the Management Board is comprised of one person, by this person;

2. if the Management Board is comprised of more than one person, by two members of the Management Board or through one member of the Management Board together with an authorised representative.** The Supervisory Board is authorised to empower individual members of the Management Board to be the sole representative of the company and to exempt the representative from § 181 BGB***

Deputy board members are on equal terms with full members of the Management Board with respect to their empowerment to act as a representative of the company.

D. Further information

*German Commercial Code

**Prokurist

***German Civil Code


These figures speak for themselves.

Consolidated balance 64

Consolidated income statement 66

Statement of changes in equity 67

IAS/IFRS cash fl ow statement 68

Gr

ou

p F

ina

nc

ial

Sta

te

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64



Previous Notes 31/12/06 year item tsd. EUR tsd. EURLong-term assets

Intangible assets 2.2.1 839 984

Property, plant and equipment 2.2.2 13,877 9,116

Real estate held as fi nancial investment 2.2.3 76,526 12,516

Investments valued at equity 2.2.4 202 198

Other long-term fi nancial assets 2.2.5 1,881 2,034

93,325 24,848

Current assets

Inventories 2.2.6 1,131 1,128

Accounts receivable 2.2.7 1,505 1,410

Other current fi nancial assets 2.2.5, 2.2.8 990 998

Other receivables and assets 2.2.9 679 483

Receivables from taxes on income 2.2.10 254 53

Cash and cash equivalents 2.2.11 6,486 78

11,045 4,150

104,370 28,998

Consolidated balance sheet to 31 December 2006

Assets

65

Liabilities

Previous Notes 31/12/06 year item tsd. EUR tsd. EUREquity

Subscribed capital 2.2.12 5,200 1,534

Capital reserve 2.2.12 42,463 0

Revaluation reserve 2.2.12 3,068 0

Cash fl ow hedges 2.2.12 54 0

Retained earnings and balance sheet profi t 2.2.12 12,566 8,763

63,351 10,297

Long-term liabilities

Financial liabilities 2.2.13 23,541 5,786

Other long-term liabilities 2.2.14 96 177

Pension provisions 2.2.15 882 963

Deferred taxes 2.2.16 8,743 3,986

33,262 10,912

Current liabilities

Financial liabilities 2.2.13 2,082 5,418

Accounts payable 2.2.17 1,422 990

Other current liabilities 2.2.18 2,685 659

Provisions for taxation 2.2.19 0 23

Other current provisions 2.2.20 1,568 699

7,757 7,789

104,370 28,998

Group Financial Statements

66



Consolidated income statement for the fiscal year from

1st January to 31st December 2006

Previous Notes 2006 year item tsd. EUR tsd. EUR

Sales 2.1.1 15,462 15,437

Inventory changes 26 45

Other operating income 2.1.2 2,757 351

Cost of materials 2.1.3 5,020 5,067

Personnel expenses 2.1.4 5,134 4,872

Amortisation of intangible fi xed assets anddepreciation of property, plant and equipmentand real estate held as a fi nancial investment 2.1.5 2,415 2,445

Other operating expenses 2.1.6 3,484 2,754

Operating income 2,192 695

Financial income 2.1.7 142 106

Financial expenses 2.1.7 718 664

Earnings before taxes 1,616 137

Income tax expense 2.1.8 694 72

Consolidated net income for the year 922 65

Number of shares (previous year adjusted for stock split) 2.2.12 1,772,333 1,560,000

Earnings per share in EUR 0.52 0.04

Number of shares 2.2.12 30,000

Earnings per share in EUR 2.17

67

1st January 2005 1,534 0 0 0 8,848 10,382

Dividends to shareholders - - - - -150 10,137

Consolidated earnings - - - - 65 65

31st December 2005 1,534 0 0 0 8,763 10,297

Revaluation 2.2.2 - - 5,044 - - 5,044

First-time application ofvaluation at fair values 2.2.3 - - - - 5,006 5,006

Cash fl ow hedges 2.2.12 - - - 87 - 87

Deferred taxes - - -1,952 -33 -1,937 -3,922

Total income after taxrecognized in equity - - 3,092 54 3,069 6,215

Consolidated net profi t - - - - 922 922

Total consolidated earnings 0 0 3,092 54 3,991 7,137

Dividends to shareholders - - - - -150 -150

Capital increase fromretained earnings 2.2.12 26 - - - -26 0

Capital increase (share issue) 2.2.12 3,640 42,770 - - - 46,410

Costs of capital increase 2.2.12 - -343 - - - -343

Transactions with shareholders 3,666 42,427 0 0 -176 45,917

31st December 2006 5,200 42,427 3,092 54 12,578 63,351

STATEMENT OF CHANGES IN EQUITY FOR THE FISCAL YEAR 2006

Note

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Subsc

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Cap

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eser

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Group Financial Statements

68



Previous Notes 2006 year item tsd. EUR tsd. EUR

Consolidated net earnings 922 6

Amortization/depreciation (-) of intangible assets,tangible fi xed assets and fi nancial assets 2.1.5 2,525 2,500

Increase/decrease (-) in long-term provisions 2.2.15 -81 -95

Other non-cash income (-)/ expense items -42 -34

Cash earnings according to DVFA/SG 3,324 2,436

Provisions (-) in short and medium-term provisions 846 -23

Gain (-)/loss on disposal of property, plant and equipment -50 -184

Gain (-)/loss on disposal of real estate held as fi nancial investments 2.1.2 -2,436 0

Increase (-)/decrease in inventories, accounts receivable, andother assets not attributable to investment or fi nancing activities -408 -26

Increase/decrease (-) in accounts payable and otherliabilities not attributable to investment or fi nancing activities 3,211 -503

Payments received/made (-) from special effects 0 600

Cash fl ow from operating activities 4,487 2,300

Payments received from the disposal of property, plant and equipment 2.1.2 69 101

Payments made (-) for investment in property, plant and equipment 2.2.2 -1,447 -1,415

Payments received from the disposal of intangible assets 2.2.1 16 87

Payments made (-) for investment in intangible assets 2.2.1 -154 -215

Payments received from the disposal of real estate held as investments 2.2.3 2,463 261

Payments made (-) for investment in real estate held as investments 2.2.3 -59,451 -1,129

Payments received from the disposal of fi nancial assets 2.2.5 1,027 1,037

Payments made (-) for investment in fi nancial assets 2.2.5 -938 -1,235

Cash fl ow from investment activities -58,415 -2,508

Payments received from the issuance of share capital 2.2.12 46,067 0

Dividends paid -150 -150

Payments received from loan draw-downs 2.2.13 17,755 366

Payments made (-) for the repayment of bonds and loans 2.2.13 -3,336 0

Cash fl ow from fi nancing activities 60,336 216

Change in cash and cash equivalents from cash-relevant transactions 6,408 8

Cash and cash equivalents at beginning of period 78 70

Cash and cash equivalents at end of period 2.3 6,486 78

IAS/IFRS CASH FLOW STATEMENTFOR THE FISCAL YEAR 2006

Audited and approved

1. General information 72

I.1 Presentation of the consolidated fi nancial statements 72

1.2 Scope of consolidation and consolidation methods 73

1.3 Accounting and valuation methods 75

2. Notes to the items in the fi nancial statements 81

2.1 Notes to the consolidated income statement 81

2.2 Notes to the consolidated balance sheet 85

2.3 Notes to the cash fl ow statement 95

3. Other disclosures 96

3.1 Contingent liabilities, other fi nancial commitments 96

3.2 Leasing agreements 97

3.3 Financial instruments and risk management 98

3.4 Segment reporting 99

3.5 Number of employees 100

3.6 Declaration of compliance with the

German Corporate Governance Code 100

3.7 Relationships with related companies or persons 100

3.8 Supervisory Board and Management Board 101

3.9 Auditors’ fees 103

3.10 Proposal for the appropriation of retained earnings 104

3.11 Disclosures concerning group membership and shareholdings 104

Auditors’ Report 107

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72



1.1 Presentation of the consolidated fi nancial statements

The consolidated fi nancial statements of BBI Bürgerliches Brauhaus Immobilien Aktiengesell-schaft, Manchinger Straße 95, 85053 Ingolstadt, to 31st December 2006 were prepared in ac-cordance with the International Financial Reporting Standards (IFRS) as accepted by the Eu-ropean Union. The IFRS also comprise the International Accounting Standards (IAS) remaining in force. All publications of the International Financial Reporting Interpretations Committee (IFRIC) [formerly known as the Standing Interpretations Committee (SIC)] binding for the fi scal year 2006 have also been observed. The consolidated fi nancial statements are presented in thousands of euros (tsd. EUR). The income statement was presented using the type of ex-penditure format. Individual items have been summarised in the income statement and in the balance sheet in order to improve transparency and meaningfulness. These are reported and explained separately in the notes to the consolidated fi nancial statements.

The consolidated fi nancial statements refl ects the strategic realignment of the company, with the focus lying in future on the establishment and professional management of an attractive real estate portfolio. Investment activity will be concentrated on commercial real estate, in particular specialist retail stores and shopping centres as well as real estate for logistics use. The traditional beverages business will also be continued.

1. GENERAL INFORMATION

73

1.2 Scope of consolidation and consolidation methods

1.2.1 Scope of consolidation

In addition to BBI Bürgerliches Brauhaus Immobilien Aktiengesellschaft, the consolidated fi -nancial statements also cover fi ve (previous year: fi ve) subsidiaries which are controlled either directly or indirectly by BBI Bürgerliches Brauhaus Immobilien Aktiengesellschaft as defi ned in IAS 27:

The equity of these companies - with the exception of that of Herrnbräu GmbH & Co. KG - remains unchanged on the previous year.

In accordance with IAS 28, associated companies are reported using the equity method if there is a prevailing infl uence. In the 2006 fi scal year, as in the previous year, this was the case with the following company:

Equity Capital share tsd. EUR %

Tre Effe S.R.L., Forli (Italy) 259 40

Capital Equity share tsd. EUR %

Herrnbräu GmbH & Co. KG, Ingolstadt 5,039 100

Herrnbräu Geschäftsführungs-GmbH, Ingolstadt 25 100

Provident fund for Bürgerliches Brauhaus Ingolstadt GmbH, Ingolstadt 25 100

MittelbayerischerGetränke-Vertrieb GmbH & Co. KG, Ingolstadt 10 100

Herrnbräu Gaststättenbetriebs GmbH, Ingolstadt 25 100

Notes

74



1.2.2 Consolidation principles

In accordance with the provisions of IFRS 3, capital is consolidated from the date of transi-tion to IFRS. The valuations of the goodwill capitalized in accordance with commercial law provisions were in principle retained on 1st January 2004 pursuant to IFRS 1 and no further scheduled depreciation was performed. The recoverability of the goodwill reported on the balance sheet is verifi ed annually or in response to advice in the form of what is known as an impairment review.

In accordance with IFRS 3, business combinations are reported using the purchase method, in which the assets and liabilities of the subsidiary are valued at the fair values at the time of acquisition. Deferred taxes are calculated on undisclosed reserves and charges revealed within the scope of initial consolidation provided that this discovery is not fi scally reproduced. Any remaining positive difference between acquisition costs and the net assets to be valued pro rata at fair values is capitalised as goodwill in accordance with IFRS 3.51. Uncovered undisc-losed reserves and charges are amortised, written down or released in the subsequent periods in line with the treatment of the corresponding assets and liabilities.

The investment valued using the equity method is shown at the pro rata equity and reported separately.

All payables and receivables and accruals between the companies included in the consolidated fi nancial statements were netted against each other. Contingent liabilities between affi liated undertakings were eliminated in the Group. There are no intercompany profi ts from invento-ries resulting from intra-group supplies. Intra-group sales revenues and other intra-group in-come were set off against the corresponding expenses. Intra-group income from investments was eliminated. Deferred taxes on consolidation transactions recognised in net income are recognised in accordance with IAS 12.

75

1.3 Accounting and valuation methods

The fi nancial statements of BBI Bürgerliches Brauhaus Immobilien Aktiengesellschaft as pa-rent and the fi nancial statements of the subsidiaries are prepared using harmonised accoun-ting and valuation methods pursuant to IAS 27.

1.3.1 Recognition of expenses and income

Sales and other operating income are in principle not recorded until the goods or merchandi-se have been delivered to customers outside the Group or services have been performed for third parties outside the Group. Sales revenues are reported after deducting non-operating expenses and beer tax.

Operating expenses are recognised as expenses on utilisation of the service or at the time it is caused.

The income tax expenses record both current tax expenses and deferred taxes.

1.3.2 Intangible assets and property, plant and equipment

Capitalised goodwill is reviewed for impairments once a year in accordance with IAS 36 and, where appropriate, written down to the lower recoverable value. The value is determined in the form of the value in use as cash of anticipated future cash fl ows. The individual subsidiary is defi ned as a cash-generating unit.

Intangible assets acquired for a consideration are valued at their cost of purchase. The be-verages supply licences agreed with customers are depreciated linearly or according to the actual supply quantity over two to no more than ten years, depending on the duration of the agreement. A depreciation period of three to fi ve years is applied for the use of acquired brand rights. In the case of purchased software, scheduled linear depreciation over four years is applied due to its limited useful economic life. Intangible assets are additionally depreciated off-schedule if the recoverable amount is less than the amortised cost. Where the reasons for an unscheduled depreciation in previous years fall away, assets are written up.

With the exception of land and buildings, property, plant and equipment are valued at their cost of purchase less scheduled linear depreciation. Financing costs are not capitalised as an element of the cost of purchase.

Notes

76



The land and buildings used for brewery purposes were revalued for the fi rst time in the fi scal year 2006. They were revalued on the basis of the fair values on 31st December 2006 determined by an independent expert. The expert used the income capitalisation method to calculate the fair values, applying the German regulations governing valuations accordingly. In the income capitalisation method the fair value of a piece of real estate essentially depends on the following variables:

• gross annual proceeds• administration costs• residual useful life of the structural installations• property yield• site value

The gross annual proceeds were calculated on the basis of the current gross annual rents for the individual properties. The site values were taken from the comparative data held by the respective local authorities. Differentiated values between 5% and 6% were applied for the property yield.

The difference between the amortised cost and the fair value was — after deducting deferred taxes — allocated to a revaluation reserve not affecting the operating result.

The scheduled depreciation is based on the following useful lives, which are standard across the Group:

Buildings 20 to 45 yearsPlant and machinery 10 to 25 yearsFixtures and fi ttings 3 to 10 years

Assets with an individual acquisition cost of up to EUR 410 are depreciated in full in the year of acquisition only if they are classifi ed as fi xtures and fi ttings; the schedule of fi xed asset mo-vements assumes their scheduled disposal. All other assets with individual acquisition costs of up to EUR 410 are depreciated as scheduled over their useful life, which is standard across the Group. Containers are essentially depreciated as scheduled over a period of 3 to 10 years.

If criteria for an impairment as defi ned in IAS 36 exist, property, plant and equipment are de-preciated off-schedule. Where the reasons for an unscheduled depreciation in previous years fall away, assets are written up to no more than the amortised cost.

77

1.3.3 Real estate held as a fi nancial investment

With the exception of the premises used by the brewery, including the building on the site, all other real estate is treated as fi nancial investments in line with IAS 40. Accruals are valued at cost. Financing costs are not capitalised as elements of the cost. In accordance with IAS 20, any investment subsidies granted by public authorities to cover additional expenses incurred for looking after listed buildings within the scope of real estate investments are reduced by the cost of purchasing the relevant asset. In previous years subsequent valuations were performed uniformly for all real estate classifi ed as investments at amortised cost less scheduled linear depreciation. The depreciation period was 45 years.

On 31st December 2006 the real estate held as a fi nancial investment was for the fi rst time reported at their fair value. The fair values were calculated by an independent expert. Please refer to section 1.3.2 for the principles governing the valuation. The difference between the amortised cost and the fair value was — after deducting deferred taxes — allocated to a reva-luation reserve not affecting the operating result.

1.3.4 Investments valued at equity

In line with the equity method, shares in associated enterprises are recognised at their pro rata equity, plus goodwill where appropriate.

1.3.5 Financial assets

The loans to customers concern the hotel and restaurant sector of the beverages segment. They are predominantly subject to interest, although the rate is sometimes low, but some are not subject to interest because they are normally associated with beverages supply rights. The loans to customers are classifi ed as loans and receivables from customers in accordance with IAS 39. The loans are valued at the amount lent less scheduled monthly repayments. Redempti-on is predominantly by the payment of monthly instalments or, in a few cases, via “hectolitre considerations”. Interest income from low-interest loans is recognised on an accrual basis after allowing for the outstanding amount and the interest rate to be applied. The risk of de-fault is considered by an appropriate valuation adjustment to the probable recoverable value. Doubtful loans from which it is highly likely that no money will be received are depreciated in full on the closing date. If the reasons for a valuation adjustment fall away, the asset is written up accordingly.

Notes

78



1.3.6 Inventories

Raw materials and supplies and merchandise are recognised at their average cost of purchase. Finished and unfi nished goods are reported at their cost of conversion after allowing for lower sale prices. The cost of conversion includes direct material and wage costs as well as fi xed and variable production costs.

1.3.7 Accounts receivable

In accordance with IAS 39, accounts receivable are classifi ed as credit and receivables exten-ded by the company and are recorded at the cost of purchase. If there are doubts as to reco-verability, the customer receivables are estimated at the lower recoverable value. A valuation adjustment is also performed for individual cases based on experience from the past.

1.3.8 Other receivables and other assets

The other current receivables and other assets include prepayments and accrued income, sup-pliers’ lien on merchandise stock, turnover tax receivables and other assets. They are valued at their amortised cost of purchase. Allowance is made for identifi able individual risks in the form of valuation adjustments.

1.3.9 Financial liabilities

The fi nancial liabilities concern liabilities towards banks as well as other fi nancial liabilities. They are in principle carried as liabilities at their amortised cost of purchase. Financing costs and ancillary costs payable on repayment or redemption are recognised on an accrual basis and affect the operating result. They increase the book value if there were not yet due at the time of origin.

79

1.3.10 Derivative fi nancial instruments

According to IAS 39, derivative fi nancial instruments must in principle be recognised at mar-ket values if these can be reliably determined.

Changes in the market value of cash fl ow hedges are fundamentally recorded in the equity as unrealised gains or losses after deducting deferred taxes. They affect the operating result at the time the underlying transaction is executed. Elements of the change in market value not covered by underlying transactions are recognised directly in the results.

Fair value hedges are recorded at the market value and affect the operating result. The book value of the hedged asset is adjusted at the same time, so that — if the security arrangements are effective — the effects on results cancel each other out.

1.3.11 Accounts payable

Accounts payable are not subject to interest and are reported at their cost of purchase, which corresponds to the nominal value.

1.3.12 Other liabilities

The other liabilities include bonds from customers, as yet unpaid refunds, other deposits of customers and taxes and social security charges. They are recorded at their amortised cost of purchase and are shown as “Other long-term liabilities” or “Other current liabilities”, depen-ding on when the liability is due.

1.3.13 Pension provisions

The actuarial valuation of the pension provisions for the occupational pension scheme con-forms to IAS 19. The provision is formed using the projected unit credit method for defi ned benefi t plans in application of the “corridor” method according to IAS 19.92. This states that differences arising at the end of the year (known as actuarial gains or losses) between the defi ned benefi t obligation and the actual plan value of the benefi t are only taken into conside-ration if they lie outside a bandwidth of 10% of the scope of the obligation. From the following year the resulting differences will be distributed over the average residual years of service of the employee benefi ciaries and recorded as income or expenses. The interest element included in the pension expense is shown as personnel expenses in the operating results.

Notes

80



1.3.14 Other provisions

Tax provisions and other provisions are formed if there is an obligation towards a third party resulting from a past event. They are only shown if it is highly likely in the future that there will be an outfl ow and this can be reliably estimated. Valuation is at full costs. We have recor-ded the provisions at the appropriate amount needed in order to ensure adequate cover for the risk. The provisions refl ect the best possible estimate of the probable outfl ow of resources that would be necessary to meet present obligations on the closing date.

1.3.15 Deferred taxes

Deferred taxes are calculated in conformity with IAS 12. Tax accruals and deferrals are formed for temporary differences between the fi scal and the balance sheet valuations and for consoli-dation processes affecting the operating result. Deferred tax on the assets side is only recorded if the associated tax reductions are highly likely to occur. No deferred taxes were reported for time lag accounting and valuation differences between the IFRS and the tax balance sheet in relation to shares in associated companies valued at equity.

The deferred taxes are calculated at the average tax rate of the Group companies, which is unchanged at 38.7%.

81

2.1 Notes to the consolidated income statement

2.1.1 Sales

Sales can be itemised as follows:

2. Notes to the items in thefinancial statements

The gains from the sale of real estate concern the sale of an undeveloped piece of land in Ingolstadt and a pub-restaurant in Reichertshofen.

Previous 2006 year tsd. EUR tsd. EUR

Beer (less beer tax) 8,391 8,236

Non-alcoholic drinks 2,943 3,053

Merchandise 1,869 1,875

Leases 1,950 1,905

Other sales revenues 309 368

15,462 15,437

2.1.2 Other operating income

Other operating income can be itemised as follows:

Previous 2006 year tsd. EUR tsd. EURGains from the sale of real estateheld as investments 2,436 0

Sales of tangible assets 50 184

Release of provisions 24 48

Write up for over-depreciation 42 34

Other 205 85

2,757 351

Notes

82




Cost of raw materials, consumables and supplies and of purchased materials 4,185 4,247

Cost of purchased services 835 820

5,020 5,067

2.1.3 Cost of materials

The cost of materials can be itemised as follows:


Wages and salaries 4,152 3,992

Social security and other pension costs 982 880

5,134 4,872

2.1.4 Personnel expenses

The personnel expenses can be itemised as follows:

2.1.5 Amortisation of intangible assets, depreciation of property, plant

and equipment and real estate held as a fi nancial investment

In the previous year this item included unscheduled amortisation of tsd. EUR 22 on intangible assets. This amortisation on intangible assets was performed on beverages supply rights be-cause purchase quantities fell well short of minimum levels or the sales establishment was closed.

83

2.1.6 Other operating expenses

The other operating expenses can be itemised as follows:

2.1.7 Financial income and expenses

The fi nancial income is made up largely of income from loans of fi nancial assets. The fi nan-cial expenses essentially comprise interest expense on long-term bank loans and the leasing commitments.


Sales expenses 1,862 1,713

Operating expenses 992 733

Administration expenses 193 173

Costs of capital increase not included in equity 176 0

Ancillary fi nancing costs 104 0

Other operating expenses 157 135

3,484 2,754

Notes

84



The companies in the Group are subject to an average trade tax burden of 16.7% (previous year: 16.7%) of trading income before the deductibility of trade tax is considered for the pur-poses of corporation tax. The corporation tax rate is 25.0% plus a solidarity surcharge on the corporation tax of 5.5%. The total tax rate is thus 38.7%, as in the previous year.

The actual tax expense of tsd. EUR 694 is tsd. EUR 69 higher than the computed income tax expense of tsd. EUR 625 which would result if the domestic rate of income tax were applied on the consolidated net earnings before taxes on income. The transition from the expected to the actual income tax expense can be broken down as follows:

2.1.8 Income tax expense


Current taxes (2006 income) -139 106

Current taxes (income from previous year) 833 -34

694 72


Consolidated net earnings before taxes 1,161 137

Tax rate 38.7% 38.7%

Expected tax expense 625 53

Tax effects from fi scally non-deductible expensesincluding trade tax additions 69 19

Actual income tax expense 694 72

85

2.2 Actual income tax expense

2.2.1 Intangible assets

The other rights predominantly comprise acquired beverages supply rights. These are depre-ciated linearly over the term of the contract.

Other Goodwill rights Total tsd. EUR tsd. EUR tsd. EUR

Cost of purchase

1st January 2005 4 2,796 2,800

Accruals 0 215 215

Disposals 0 475 475

Transfers 0 -47 -47

31st December 2005 4 2,489 2,493

Accruals 0 154 154

Disposals 0 205 205

31st December 2006 4 2,438 2,442

Amortisation

1st January 2005 0 1,635 1,635

Accruals 0 262 262

Disposals 0 388 388

31st December 2005 0 1,509 1,509

Accruals 0 283 283

Disposals 0 189 189

31st December 2006 0 1,603 1,603

Book value

1st January 2005 4 1,161 1,165

31st December 2005 4 980 984

31st December 2006 4 835 839

Notes

86



The land and buildings comprise the premises dedicated to the brewery and the production and administration buildings. The difference of tsd. EUR 5,044 determined in the revaluation of the land and buildings between the amortised cost and the fair values has been allocated to a revaluation reserve not affecting the operating result after deducting the pro rata deferred taxes of tsd. EUR 1,952, leaving tsd. EUR 3,092. The revaluation reserve is subject to a bar on dis-tribution. The amortised cost of the land and buildings would have amounted to tsd. EUR 1,917on 31st December 2006.

2.2.2 Property, plant and equipment

Property, plant and equipment developed as follows:

Cost of purchase

1st January 2005 3,700 9,977 18,014 507 32,198

Accruals 5 25 1,376 9 1,415

Disposals 107 592 2,226 44 2,969

Transfers 0 0 0 -434 -434

31st December 2005 3,598 9,410 17,164 38 30,210

Accruals 0 14 1,175 258 1,447

Disposals 0 462 646 0 1,108

Transfers 0 0 0 -9 -9

31st December 2006 3,598 8,962 17,693 287 30,540

Depreciation

1st January 2005 1,609 6,553 14,045 0 22,207

Accruals 108 495 1,158 0 1,761

Disposals 107 592 2,175 0 2,874

31st December 2005 1,610 6,456 13,028 0 21,094

Accruals 92 470 1,140 0 1,702

Disposals 21 450 618 0 1,089

31st December 2006 1,681 6,476 13,550 0 21,707

Revaluation 5,044 0 0 0 5,044

Book value

1st January 2005 2,091 3,424 3,969 507 9,991

31st December 2005 1,988 2,954 4,136 38 9,116

31st December 2006 6,961 2,486 4,143 287 13,877

Land andbuildingstsd. EUR

Plant andmachinery

tsd. EUR

Fixtures andfi ttings

tsd. EUR

Payments on account and assets under construction

tsd. EURTotal

tsd. EUR

87

2.2.3 Real estate held as fi nancial investment

The real estate held as fi nancial investment developed as follows:

On the closing date the property portfolio comprised ten specialist retail stores; a further fi ve were acquired in January 2007. These properties are let on a long-term lease to a tenant of high credit standing. The fi rst ten stores in the “specialist retail stores portfolio” accrued immediately before the closing date. These properties are therefore reported at the accrual values of tsd. EUR 58,368.

tsd. EUR

Cost of purchase

1st January 2005 14,457

Accruals 1,129

Disposals 88

Transfers 434

31st December 2005 15,932

Accruals 59,451

Disposals 30

Transfers 9


Depreciation

1st January 2005 3,000

Accruals 421

Disposals 5


Accruals 429

Disposals 3


Write-up to the fair value 5,006

Book value

1st January 2005 11,457



Notes

88



The property portfolio also includes the historic holdings in the form of 12 residential and business properties and pub-restaurants as well as a piece of land leased in perpetuity. There are no properties held within the scope of an operating lease.

The difference of tsd. EUR 5,006 determined on the transition from subsequent measurement to the fair value model between the amortised cost and the fair values has been allocated to the retained earnings not affecting the operating result after deducting the pro rata deferred taxes of tsd. EUR 1,937, leaving tsd. EUR 3,069.

The income and expenses associated with the real estate held as a fi nancial investment can be itemised as follows:


Rental income 1,436 1,420

Operating expenses 349 337

2.2.4 Investments valued at equity

To safeguard its exports to Italy, BBI Bürgerliches Brauhaus Immobilien Aktiengesellschaft acquired a 40% stake in Tre Effe S.R.L., registered in Forli (Italy). This holding was transferred to Herrnbräu GmbH & Co. KG when the beverages division was spun off. Tre Effe S.R.L. has proved to be a reliable support for export business over the course of the last few years. The investment itself produced earnings of tsd. EUR 4 (previous year: tsd. EUR 1), which is recorded under “Other operating income”.

2.2.5 Other fi nancial assets

The other fi nancial assets include loans to customers for the fi nancing of sales. Individual valuation adjustments totalling tsd. EUR 790 (previous year: tsd. EUR 717) were performed for probably uncollectible loans to customers. Further valuation adjustments amounting to tsd. EUR 69 (previous year: tsd. EUR 70) were performed on the basis of experience with defaults in the past. These fi gures also include the valuation adjustments on the current part of the customer loans reported under other current fi nancial assets. The valuation adjustments are recorded under “Financial expenses” in the income statement.

89

The inventories recorded in the previous year have — with only minor exceptions — beenconsumed.

2.2.7 Accounts receivable

The accounts receivable essentially comprise receivables from the same of merchandise. Valu-ation adjustments of tsd. EUR 109 (previous year: tsd. EUR 118) were performed for receivables which are either uncollectible or very unlikely to be collectible. Individual valuation adjust-ments of tsd. EUR 36 (previous year: tsd. EUR 33) were also performed on the basis of defaults in the past.

2.2.8 Other current fi nancial assets

The other current fi nancial assets comprise the current portion of the loans to customers which are due within one year.

2.2.9 Other receivables and other assets

Previous 31/12/2006 year tsd. EUR tsd. EUR

Refund for old-age part-time work 172 0

Suppliers‘ deposit on merchandise stocks 96 133

Sales tax overpayments 96 0

Receivables from associated companies 68 50

Market value of cash fl ow hedges 87 0

Other receivables 48 35

Receivables from city of Ingolstadt 0 108

Prepayments and accrued income 112 157

679 483

2.2.6 Inventories Previous 31/12/2006 year tsd. EUR tsd. EUR

Raw materials and supplies 517 527

Unfi nished goods 144 130

Finished goods 391 378

Merchandise 79 93

1,131 1,128

Notes

90



2.2.10 Income tax receivables

The income tax receivables comprise only actual claims to refunds from overpayments of corporation tax and trade tax and the capitalisation of the corporation tax credit balance re-sulting from the change-over of systems from the split-rate imputation to the half-income me-thod. According to the regulations of the SEStEG, this credit balance to be assessed for the last time on 31st December 2007. It will be paid out in 10 equal instalments starting from 2008.

2.2.11 Cash and cash equivalents

The cash and cash equivalents, cash on hand and on deposits with banks of fi rst-rate standing. Of this total, tsd. EUR 6,441 is held by BBI AG at Sparkasse Ingolstadt.

2.2.12 Equity

On 24th August 2006 the General Meeting decided to convert the authorised capital to euros and to increase the sum by EUR 26,124.36 to EUR 1,560,000.00 through a capital increase from company funds. The authorised capital was also redivided through a share split at the rate of 1:52. The authorised capital is now made up of 1,560,000 shares rather than the 30,000 shares previously.

The General Meeting also approved a capital increase through cash contributions of up to EUR 14,040,000.00 through the issuance of up to 14,040,000 new individual bearer shares. This capital increase was partially implemented in December 2006. The new shares were issued at a unit price of EUR 12.75. 3,640,000 new shares have been subscribed. After deduction of the tsd. EUR 343 in costs for the capital increase less deferred taxes, the agio of tsd. EUR 42,770 was allocated to the capital reserve. The unsubscribed 10,400,000 shares can no longer be issued because the time limit has expired. The capital increase was recorded on the companies regis-ter on 12th December 2006.

On the closing date the authorised capital is therefore EUR 5,200,000.00, divided into 5,200,000 no-par individual bearer shares. The old shares are traded on the offi cial market of the Munich stock exchange (ISIN DE0005280002), the “new” shares over the counter on the Munich stock exchange (ISIN DE000A0KPN73).

The difference between the amortised cost and the fair value of the self-used land and buil-dings determined when these assets were revalued has been allocated to the revaluation reserve. Deferred taxes amounting to tsd. EUR 1,952 have been deducted from the difference of tsd. EUR 5,044.

91

The „Retained earnings and balance sheet profi t“ item includes the cumulative results including legal reserve of tsd. EUR 698 (previous year: tsd. EUR 698). On 31st December 2006 the difference (tsd. EUR 5,006) determined on the transition from the subsequent measurement to the fair value system for the real estate held as a fi nancial investment was allocated to the retained earnings after deducting deferred taxes (tsd. EUR 1,937).

The equity continues to include the market value of cash fl ow hedges where these serve to hedge (interest) payment fl ows of concrete underlying transactions.

The change in equity is set out in the schedule of changes in equity.

To determine the earnings per share, an average holding of issued shares for the fi scal year 2006 was determined on the basis of the issuance of new shares on 12th December 2006. The average shareholding comes to 1,772,333 units. For the purposes of better comparability, the number of shares indicated in the fi gure for the previous year has been adjusted to refl ect the share split effected in 2006.

2.2.13 Financial liabilities

Both fi xed and variable interest rates were agreed for bank loans. Risks of interest-rate chan-ges were hedged using interest-rate swaps. The total nominal value of the swaps amounts to EUR 11.4 million. The fair value of the fair-value hedges existing on 31st December 2006 is refl ected in the fi nancial liabilities. On current estimates, the cash fl ow hedges result only in net infl ows. Of the bank loans, tsd. EUR 24,879 (previous year: tsd. EUR 8,649) is secured against mortgages on real estate.


Due to banks with a residual term > 5 years 16,471 2,584

Due to banks with a residual term> 1 year and up to 5 years 6,709 2,685

Leasing commitments with a residual term> 1 year and up to 5 years 361 517

Long-term fi nancial liabilities 23,541 5,786

Due to banks with a residual term up to 1 year 1,899 5,208

Leasing commitments with a residual term> 1 year and up to 5 years 183 210

Current fi nancial liabilities 2,082 5,418

Financial liabilities 25,623 11,204

Notes

92



On 31st December 2006 the Group had appropriate and suffi cient as yet unused lines of credit available to it.

The leasing commitments result from the leasing of the brewing house, which according to the regulations of IAS 17 is to be classifi ed as fi nance leasing”.

2.2.14 Other long-term liabilities

The other long-term liabilities comprise liabilities from leasing bonds.

2.2.15 Pension provisions

The provisions for pensions comprise the commitments for an occupational pension scheme for benefi ciaries and their surviving dependents. The employer pension plans are based on pension commitments set out in individual contracts. The benefi ciaries are normally entitled to a fi xed old age and invalidity pension depending on their length of service when they reach the retirement age of 65. No other benefi ts are provided after termination of the employ-ment.

The provident fund grants certain benefi ts to former employees of its funding companies and their surviving dependents on the basis of a works agreement. Old age, invalidity and widow’s pensions are granted after a qualifying period of 10 years has elapsed. On completion of the qualifying period, the benefi ts begin to be paid out upon occurrence of the invalidity or inca-pacity for work, and no later than upon retirement on reaching the age of 65. The amount of the old age and invalidity pension depends on the length of service and is subject to a maxi-mum limit. The pension scheme is closed to new recruits.

The pension expenses included in personnel expenses can be itemised as follows:


Current length-of-service expense 1 1

Interest expense 46 49

Pension expenses 47 50

93

The balance sheet fi gure representing the Group’s old age pension commitments can be ite-mised as follows:

The salary trend — like the fl uctuation probability — was set at 0.0% because the employer pension plans, with one exception, now only apply for employees who are already drawing a pension.

Previous 2006 year % %

Discount interest 4.50 4.25

Salary trend 0.00 0.00

Pension trend 1.75 1.75

Imputed actuarial assumptions:

The value of the defi ned benefi t plans developed as follows over the course of the fi scal year:


Pension provisions on 01.01 963 1,058

Pension expense 47 50

Pension and benefi t payments -142 -145

Distribution of actuarial losses 14 0

Pension provisions on 31.12 882 963


Cash value of defi ned benefi t pension plans 1,024 1,058

Unrecorded actuarial losses -142 -95

Pension provisions 882 963

Notes

94



2.2.16 Deferred taxes on the liabilities side

The deferred tax liabilities predominantly comprise the valuation differences between the IFRS valuations of property, plant and equipment and of real estate held as a fi nancial investment and the corresponding valuations shown in the tax balance sheet. This is due to the assets having a longer useful economic life according to the IFRS principles than according to fi scal regulations and to the non-admission of tax deductions in accordance with § 6 b EStG.

2.2.17 Accounts payable

The accounts payable concern outstanding obligations from transactions for goods and ser-vices.

2.2.18 Other current liabilities

The other current liabilities essentially comprise as yet unpaid refunds, other deposits of cus-tomers and taxes and social security charges.

2.2.19 Tax provisions

The tax provisions in the previous year related solely to obligations from current taxes on income.

95

2.2.20 Other current provisions

The provision for obligations to recover empties was calculated on the basis of the turnover time of the container. The turnover times are based on the random counting of recovered empties in the fi scal year or in previous years. The provisions for personnel costs include ma-nagement bonuses and special commitments, holiday wages and salaries and semi-retirement contracts. In addition to costs for the capital increase, which came to tsd. EUR 436 (previous year: tsd. EUR 0), the other provisions comprise other obligations with an individual value of less than 10% of the total provision sum.

2.3 Notes to the cash fl ow statement

In line with IAS 7, the cash fl ow statement shows how payments in the fi scal year changed through infl ows and outfl ows. The cash fl ow statement divides the payment fl ows into opera-ting activities, investment activities and fi nancing activities. Where necessary in the individual case, payments are allocated to several of these areas.

Cash earnings according to DVFA/SG constitute the earnings-related permanent cash fl ow of the Group.

The cash fl ow from operating activities includes interest received of tsd. EUR 52 (previous year: tsd. EUR 106) and interest paid of tsd. EUR 608 (previous year: tsd. EUR 610). In contrast to the previous year, the cash fl ow from operating activities does not include any income tax payments.

The cash fl ow from fi nancing activities takes into account both dividend payments and the assumption and redemption of fi nancial liabilities with credit institutions. The fi nancial funds shows all liquid assets held in cash and with credit institutions. There are no cash or cash

Empties Provision recovery for personnel Other obligations expenses provisions Total tsd. EUR tsd. EUR tsd. EUR tsd. EUR

1st January 2005 413 161 149 723

Utilised 385 140 114 639

Released 28 0 4 32

Allocated 384 146 117 647

31st December 2005 384 167 148 699

Utilised 373 147 112 632

Released 11 4 4 19

Allocated 373 508 639 1,520

31st December 2006 373 524 671 1,568

Notes

96



3.1 Contingent liabilities, other fi nancial commitments

Contingent liabilities are existing or future commitments resulting from past events, but which are not thought likely to result in outfl ows. According to IAS 37, such commitments must be listed in the notes. Neither in 2006 nor in the previous year were there any contin-gent liabilities.

Other fi nancial commitments exist in the real estate segment in the form of commitments to purchase real estate which is to be held as a fi nancial investment. Specifi cally, these con-cern a contract concluded in January 2007 for the purchase of a further fi ve specialist retail stores. The purchase price amounted to EUR 36.7 million and was due for payment at the end of January 2007. There is also a commitment to acquire a property portfolio consisting of 10 specialist retail centres that are currently still in the project phase. The properties are spread across southern Bavaria; they are to be acquired following completion and initial letting. The purchase price including purchase costs will be approx. EUR 110 million.

The following other fi nancial commitments also exist in the beverages segment:

3. Other disclosures

The amounts from leasing agreements correspond to an annual rent. The average contract term is 5 years.


Leases 400 473

Malt and hop contracts 690 900

Issued investment orders 0 12

97

3.2 Leasing agreements

The Group’s leasing agreements for parts of the brewing house are to be classifi ed as fi nance leasing in accordance with IAS 17. The resulting payment obligations are included in the fi nan-cial liabilities in conformity with the duration (cf. section 2.2.13). Where leasing agreements fall into the category of an operating lease, the rental payments are distributed linearly in the period result over the term of the lease and included in the other operating expenses.

The future leasing payments under the fi nance leases and their cash value can be itemised as follows:

On the closing date the Group had outstanding obligations under operating leases that are due as follows:

Payments under operating leases concern machinery as well as vehicle pool rentals and offi ce equipment such as copiers and fax machines. Leases are concluded for an average term of three to fi ve years. No “conditional” rental payments or price escalation clauses are agreed in the leases. No use is normally made of options to extend or buy.

Leasing payments Cash value tsd. EUR tsd. EUR

Residual term > 5 years 0 0

Residual term 1 to 5 years 361 248

Residual term less than 1 year 183 154

544 402

previous 31/12/2006 year tsd. EUR tsd. EUR

Residual term > 5 years 95 171

Residual term 1 to 5 years 473 797

Residual term less than 1 year 324 273

892 1,241

Notes

98



3.3 Financial instruments and risk management

3.3.1 Principles

On the assets side, the fi nancial instruments as defi ned in IAS 39 include other fi nancial assets, accounts receivable and other receivables and assets. On the liabilities side, they are fi nancial liabilities, accounts payable and other liabilities. Financial derivatives are reported at the mar-ket value and employed solely in order to reduce risk.

3.3.2 Risks of changes in interest rates

Finance to customers is provided at fi xed interest rates. The risk of interest-rate changes in the event of recourse to borrowings is hedged by derivative fi nancial instruments. Volumes and durations are tailored to the repayment structure of the borrowings. Derivative fi nancial contracts are only concluded with fi rst-rate banks and are restricted solely to hedging opera-tive business.

3.3.3 Credit and default risks

The maximum default risk of the Group results in the main from the accounts receivable and loans to customers. The amounts reported in the balance sheet have been reduced by valua-tion adjustments for receivables which are expected to be uncollectible; these were formed in accordance with the Group’s debtor and credit-rating guidelines.

There is no de facto default risk in the case of liquid assets and derivative fi nancial instruments because these are held with banks which rating agencies certifi ed as highly creditworthy.

As business operations are realigned the real estate portfolio will be selectively expanded by further attractive properties from the retail sector. On the closing date investment was focused on the “specialist retailer portfolio” with a tenant of fi rst-class standing, resulting in a temporary concentration in the tenant structure. Given the diversifi cation measures that have already been instigated in line with the company’s strategy, the proportion of individual tenants in the overall portfolio will fall sharply.

There is no signifi cant concentration of default risks in the beverages segment because the risks are spread over a large number of contracting partners and customers.

99

3.4 Segment reporting

In consideration of IAS 14, BBI Bürgerliches Brauhaus Immobilien Aktiengesellschaft defi nes its primary fi elds of business as the use and development of its own property holdings (real estate segment) and the manufacture and distribution of beer, including non-alcoholic beve-rages (beverages segment). The associated company is assigned to the beverages segment. The pension commitments are reported in the real estate segment.

Because the business activities are focused almost exclusively on Germany, segmentation by the second reporting format, “regions”, is dispensed with.

1) Gross investment in property, plant and equipment, intangible assets, real estate held as a fi nancial investment and fi nancial assets2) Depreciation on property, plant and equipment, intangible assets and real estate held as a fi nancial investment

Segment reporting 1st January to 31st December 2006

Real estate Beverages Group tsd. EUR tsd. EUR tsd. EUR

Segment external sales revenues 1,436 14,026 15,462

Segment EBIT 2,318 -145 2,173

Segment assetsexcluding income tax receivables 83,649 20,467 104,116

Segment liabilities 31,219 9,800 41,019

Segment investment 1) 59,482 2,508 61,990

Segment depreciation (property, plant &equipment, beer supply rights) 2) 430 1,985 2,415

Segment reporting 1st January to 31st December 2005

Real estate Beverages Group tsd. EUR tsd. EUR tsd. EUR

Segment external sales revenues 1,420 14,017 15,437

Segment EBIT 474 168 642

Segment assetsexcluding income tax receivables 12,701 16,244 28,945

Segment liabilities 10,471 8,041 18,512

Segment investment 1) 1,137 2,856 3,993

Segment depreciation (property, plant &equipment, beer supply rights) 2) 421 2,024 2,445

Notes

100



3.5 Number of employees

3.6 Declaration of compliance with the German Corporate Governance Code

The Management Board and the Supervisory Board of BBI Bürgerliches Brauhaus Immobilien Aktiengesellschaft have issued a declaration of compliance with the recommendations of the German Corporate Governance Code pursuant to § 161 AktG [German Stock Corporation Act] and published it on the internet under www.bbi-immobilien-ag.de.

3.7 Relationships with related companies or persons

Related companies or persons are considered to be all companies which belonged to the scope of consolidation of VIB Vermögen Aktiengesellschaft, Neuburg/Donau, or BayernLB, Munich, in the fi scal year 2006. They also include enterprises in which group companies have equity interests where these have not been included in the consolidated fi nancial statements by way of full consolidation. The following transactions took place between the Group and related companies or persons:

On the closing date the balance sheet shows receivables due from Tre Effe S.R.L. arising from supplies to the sum of tsd. EUR 68 (previous year: tsd. EUR 50).

Transactions between related parties are performed solely on commercial terms.

1) Payroll averaged over the year with part-time workers included pro rata

Previous 2006 year

Industrial workers 59 63

Salaried staff 32 33

Average payroll 1) 91 96

Previous Type of 2006 yearSupplying company transaction tsd. EUR tsd. EUR

M‘net Telekommunikations GmbH, Munich Services 7 9

Merkur GmbH, Neuburg/Donau Services 58 0

Tre Effe S.R.L., Forli (Italy) Supplies 396 214

461 223

101

3.8 Supervisory Board and Management Board

3.8.1 Supervisory Board

Members of the Supervisory Board in the fi scal year 2006:

Mandates (excluding BBI Bürgerliches Brauhaus Immobilien AG) on supervisory committees the law requires to beShareholder representatives formed by corporations

Ludwig Schlosser, Neuburg/Donau Raiffeisen-Volksbank Neuburg/Donau eG(from 17th June 2006) ChairmanChairmanExecutive Manager, VIB Vermögen AG

Franz-Xaver Schmidbauer, Ingolstadt VIB Vermögen AG, Neuburg/Donau(from 17th June 2006) ChairmanVice ChairmanArea Vice President, Tupperware

Peter Amberger, Tegernsee(from 24th August 2006)Executive Manager, Loxxess AG

Rolf-Peter Albrecht, Neuburg/Donau(from 17th June to 24th August 2006)Lawyer in VIB Vermögen AG

Rupert Hackl, München Eurohypo AG (until 7th April 2006)(from 24th August 2006) Rathgeber AG, deputy chairmanBranch manager of Eurohypo AG ALBA BauProjektManagement GmbH

Rainer Hettmer, Neuburg/Donau(from 17th June to 24th August 2006)Authorised offi cer in VIB Vermögen AG

Notes

102



Mandates (excluding BBI BürgerlichesUntil 12th June 2006 Brauhaus Immobilien AG) on supervisory committees the law requires to beShareholder representatives formed by corporations

Dr. Benedikt Haas, KirchseeonChairmanDirector of Bayern LB

Jörg M. Bauer, München DKB Immobilien AG, BerlinChairmanRetired bank director of Bayern LB

Dr. Bernhard Oswald, Garching near Munich TxB Transaktionsbank GmbHVice ChairmanDirector of Bayern LB

Georg Jewgrafow, MunichBank Director of Bayern LB

Andreas Nerantzakidis, Munich Haupt Pharma AG, BerlinHead of Dept. at Bayern LB

Elected by the workforce

Uwe Krause, driver, Ingolstadt

Franz Leiter, salaried employee, Ingolstadt

Members of the Management Board in the fi scal year 2006

Claus Paulus, Greiling (until 31st December 2006)

Peter Schropp, Munich(from 6th November 2006)

103

3.8.2 Total emoluments of members of corporate bodies

Tsd. EUR 699 (previous year: tsd. EUR 776) has been allocated for pension commitments to former members of the Management Board and their surviving dependents.

3.9 Auditors’ fees

The auditors’ fees, which are reported in the Group as an expense, can be itemised asfollows:


Audit of fi nancial statements 61 48

Tax consultancy 10 0

Previous 2006 yearManagement Board remunerations tsd. EUR tsd. EUR

Fixed salary

Claus Paulus 191 191

Peter Schropp 10 0

Performance-related salary elements

Claus Paulus 9 20

Peter Schropp 8 0

Benefi ts to former Board membersand their surviving dependents 112 113

Benefi ts to the Supervisory Board 32 22

Notes

104



3.10 Proposal for the appropriation of retained earnings

Due to the costs of the capital increase, which under commercial law must be charged in full to earnings, the annual fi nancial statements of BBI Bürgerliches Brauhaus Immobilien Aktien-gesellschaft under commercial law show a net loss. The General Meeting will therefore be as-ked to carry the resulting balance sheet loss of EUR 414,649.89 forward to the new account.

3.11 Disclosures concerning group membership and shareholdings

In a letter dated 3rd April 2002, Bayern LB, Munich, informed us in accordance with § 41 Para. 2Sentence 1 WpHG [German Securities Trading Act] that on 1st April 2002 it held 93.78% of the voting rights in BBI Bürgerliches Brauhaus Immobilien Aktiengesellschaft, Ingolstadt.

On 12th May 2006 Bayerische Landesbank, Brienner Straße 18, 80333 Munich, wrote to us as follows in accordance with § 21 Para. 1 WpHG:

“We are writing to inform you in compliance with § 21 Para. 1 WpHG that the voting rights of Bayerische Landesbank, Brienner Straße 18, 80333 Munich, in Bürgerliches Brauhaus Ingolstadt AG, Ingolstadt, fell below the thresholds of 75%, 50%, 25%, 10% and 5% on 12th May 2006 and is now 0%.”

105

On 17th May 2006 VIB Vermögen Aktiengesellschaft, Luitpoldstraße C70, 86633 Neuburg/Do-nau, wrote to us as follows in accordance with § 21 Para. 1 WpHG and § 25 Para. 1 WpHG:

“We are writing to inform you that on 12th May 2006 we acquired a total of 28,335 voting individual bearer shares making up a computed portion in the authorised capital of approx. EUR 51.13 per share in Bürgerliches Brauhaus Ingolstadt AG. With an authorised capital of EUR 1,533,875.64, this corresponds to a 94.45% share of the voting rights. VIB Vermögen AG has therefore acquired control of Bürgerliches Brauhaus Ingolstadt AG within the meaning of § 35 Para. 1 S. 1 and § 29 Para. 2 WpÜG [German Securities Acquisition and Takeover Act]. We must also inform you that we will submit a mandatory offer in compliance with § 35 WpÜG in conjunction with § 10 WpÜG. On 16th May 2006 we notifi ed the management of the Mu-nich stock exchange, Lenbachplatz 2a, 80333 Munich, and of BaFin [German Federal Financial Supervisory Authority], Lurgiallee 12, 60439 Frankfurt. The mandatory offer is published under http://www.vib-ag.de and www.buerg-brauhaus-ingolstadt.de.”

On 18th December 2006 VIB Vermögen Aktiengesellschaft, Luitpoldstraße C 70, 86633 Neub-urg/Donau, informed us in accordance with § 21 Para. 1 WpHG that its voting rights in our com-pany had fallen below the threshold of 75% on 12th December 2006 and was now 28.49%.

On 27th December 2006 Raiffeisen-Volksbank Neuburg/Donau eG, Luitpoldstraße 70, 86633 Neuburg/Donau, informed us in accordance with § 21 Para. 1 WpHG that its voting right in our company had risen over the threshold of 5.00% on 18th December 2006 and was now 6.06%.

On 16th January 2007 Raiffeisen-Volksbank Neuburg/Donau eG, Luitpoldstraße 70, 86633 Neub-urg/Donau, informed us in accordance with § 21 Para. 1 WpHG that its voting right in our com-pany had fallen below the threshold of 5.00% on 15th January 2007 and was now 3.84%.

Ingolstadt, 26th March 2007

Peter Schropp(Executive Manager)

Notes

106

107

We have audited the consolidated fi nancial statements prepared by BBI Bürgerliches Brau-haus Immobilien Aktiengesellschaft, Ingolstadt, consisting of the balance sheet, the income statement, the presentation of recorded income and expenses, the cash fl ow statement and the notes to the consolidated fi nancial statements for the fi scal year from 1st January to 31st December 2006. The preparation of the consolidated fi nancial statements and the Group ma-nagement report in accordance with the International Financial Reporting Standards (IFRS) as approved by the EU and the supplementary provisions defi ned in Section 315a (1) HGB [Ger-man Commercial Code] are the responsibility of the Company’s board of management. Our responsibility is to express an opinion on the consolidated fi nancial statements and the Group management report on the basis of the audit performed by us.

We conducted our audit of the consolidated fi nancial statements in accordance with Section 317 HGB and generally accepted standards for the audit of fi nancial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). These standards require that we plan and perform the audit to provide reasonable assurance of detecting any misstatements materially affec-ting the presentation of net assets, fi nancial position and results in the consolidated fi nancial statements in accordance with German accounting principles and the Group management report. Knowledge of the business activities and the economic and legal environment of the Group and evaluations of possible misstatements are taken into account in the determinati-on of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated fi nancial 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 fi nancial statements of companies inclu-ded in the consolidated fi nancial statements, the defi nition of the consolidated Group, the accounting and consolidation principles used and signifi cant estimates made by the board of management, as well as evaluating the overall presentation of the consolidated fi nancial state-ments and the Group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the fi ndings obtained during the audit, the consolidated annual fi nancial statements of BBI Bürgerliches Brauhaus Immobilien Aktiengesellschaft, Ingolstadt, were prepared in accordance with IFRS as applied in the EU, and in compliance with the sup-plementary provisions of Section 315a (1) HGB. The consolidated fi nancial statements present a true and fair view of the net assets, fi nancial position and results of the Group. The Group management report is consistent with the consolidated fi nancial statements. As a whole, the Group management report provides a suitable understanding of the Group’s position and sui-tably presents the opportunities and risks of future development.

Freising-Weihenstephan, 26th March 2007Landestreuhand Weihenstephan GmbHAuditors

(Dr. A. Wendelstein) (Dr. J. Wochner)Auditor Auditor

Auditors’ Report

Notes

110

BBI Bürgerliches Brauhaus Immobilien AGManchinger Str. 95

85053 IngolstadtGermany

Tel: +49 (0)8431 504 900Fax: +49 (0)8431 504 974

Email: [email protected]

Chief Executive Offi cer: Peter SchroppRegister court: Ingolstadt

Company registration number: B44

Editorial cometis AG

Unter den Eichen 765195 Wiesbaden

Germany

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PhotographyUlli Hamm | www.photocase.de

DisclaimerThis Annual Report contains forward-looking statements that involve risks and uncertainties. These statements are based on the plans, esti-

mates and projections of the management board of the BBI Bürgerliches Brauhaus Immobilien AG and refl ect its present beliefs and expectations

with regard to future occurrences. Such forward-looking statements can be recognised by the use of words or expressions such as “expect”, “estimate”, “intend”, “can”, “will” or similar expressions with reference

to the company. Factors that can make a difference or can infl uence are without any claim to completeness, e.g. the development of the real es-tate market, competitive infl uences including price changes or regulato-ry measures. Should any of these or other risks and uncertainties occur or the underlying assumptions in the statements prove to be incorrect,

the actual results of the BBI Bürgerliches Brauhaus Immobilien AG could differ materially from those contained or implied in any forward-looking statement. The company undergoes no obligation to update any

such forward-looking statements.

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