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Praktiker AG
5.875% Senior Unsecured Notes due 2016

April 2012
Strictly Private and Confidential

For Personal Use Only

Overview
Company Description
Praktiker is a Germany-based home improvement retail group Second largest home improvement retailer in Germany by revenue with the Praktiker chain catering to the lower end of the market and its Max Bahr subsidiary catering to the upper end Leader in a few European countries, e.g. Romania, Poland and Hungary Consolidate headquarters and halving the number of staff employed in admin functions in order to reduce administrative overheads Close down c.30 stores in Germany Reduce total headcount by 1,400 full time equivalents 2011: Thomas Fox, who headed the turnaround efforts Karstadt, is appointed CEO and starts restructuring Praktiker 2008: Phasing out of the all encompassing 20% off everything campaign 2007: Acquisition of Max Bahr for 276mn 2005: IPO and sale of its real estate portfolio by funds managed by Natixis Global Asset Management for 450mn Implemented restructuring program anticipated to cost c.300mn in order to

Financials
(mn unless stated otherwise)
2004A Total Area (sqm ) Deutschland International Max Bahr Revenue Growth (%) Deutschland International Max Bahr EBITDA Margin (%) Deutschland International Max Bahr EBIT Margin (%) Deutschland International Max Bahr Net Incom e Margin (%) Cash from Operations (1) Capex(2) Deutschland International Max Bahr 1,958 1,555 403 -2,934 2,251 685 -110 3.8% 60 50 -70 2.4% 34 36 -40 1.4% 68 56 16 39 -2005A 2,012 1,549 463 -3,034 3.4% 2,266 769 -136 4.5% 77 58 -96 3.1% 54 41 -85 2.8% 118 168 25 61 -Year ending December 31, 2006A 2007A 2008A 2009A 2,583 1,515 512 556 3,162 4.2% 2,284 880 726 148 4.7% 79 71 -111 3.5% 59 53 -84 2.7% 130 68 14 54 -2,712 2,099 613 -3,945 24.8% 2,864 1,083 -179 4.5% 81 99 -116 2.9% 41 75 -24 0.6% 223 168 54 114 -2,720 1,412 696 612 3,907 (1.0%) 1,869 1,241 702 199 5.1% 48 115 38 129 3.3% 21 84 26 7 0.2% 135 118 40 70 8 2,767 1,425 721 621 3,663 (6.2%) 1,835 1,046 691 129 3.5% 28 62 44 63 1.7% 0 33 31 (9) (0.3%) 64 73 30 28 16 2010A 2011A 2,804 2,814 1,423 1,420 753 766 628 628 3,448 3,183 (5.9%) (7.7%) 1,680 1,507 996 894 685 695 106 (299) 3.1% (9.4%) 27 (204) 41 (10) 42 2 35 (535) 1.0% (16.8%) -(422) 11 (84) 29 (21) (34) (555) (1.0%) (17.4%) 80 (117) 62 71 23 46 23 19 15 5

Brief history and recent developments

Source: Company website, company call notes, Wikipedia, various news sources

Bond Description(1)
Key terms Senior unsecured bond issued at 99.473% of par by the HoldCo in February 2011 due on February 10, 2016 Fixed coupon of 5.875% payable annually in arrears on February 10 Negative pledge on all assets vis-a-vis any future Capital Market Indebtedness(2) with the exception of receivables programs

Capital Structure and Balance Sheet Data Market Capitalization as of 2012/04/19 Bond (at par) Bond (trading value) Bank debt Finance Lease Operating leases Pension obligations Trade payables 88 250 125 5 247 2,082 1 354 PPE Trade receivables Cash & CE 389 12 148

Recently asked for bondholders to vote for a reduction of the coupon to 1% for all bondholders. This motion was not passed due to a participation rate of less than 50%. A second vote could be asked for, for which the participation hurdle is at 25% (SchVG 15 (3)). Purchasing a 25%+ stake in the bond will give the holder a blocking position since a 75% approval rate is required (SchVG 5 (4))

(1) ISIN: DE000A1H3JZ8 (2) Securities that are capable of being dealt on other recognised securities markets [excerpt from prospectus] Source: Bond prospectus, website of the German Department of Justice

Source: Company filings Note: For 2007 Max Bahr was reported as part of Praktiker Deutschland. (1) Operating cash flow before working capital changes (2) Capex includes intangibles on a corporate level as well as non-cash capex

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Assessment
Risk Factors
Turnaround of operations may not materialize although the downwards trend seem to be slowing down Results have been improving in 2012Q1 according to management statements during the 2011FY press conference Short term costs of closing down stores vs. savings
151.4% --% 10.0% 20.0% 30.0% 2013/02/10 NM (85.2%) (65.2%) (42.7%) (18.5%) 7.3% 34.2% 62.2% 91.1% 120.9% 151.4%

Return Analysis
Exit Date 2014/02/10 (92.8%) (51.5%) (31.5%) (15.7%) (2.1%) 10.0% 21.0% 31.2% 40.8% 49.8% 58.4% 2015/02/10 (63.6%) (31.3%) (16.4%) (5.6%) 3.2% 10.8% 17.4% 23.4% 28.8% 33.9% 38.6% 2016/02/10 (40.9%) (19.1%) (8.2%) (0.4%) 5.9% 11.1% 15.7% 19.8% 23.6% 27.0% 30.1%

Seniority and dilution Financing through more senior bank facilities may be possible and thereafter threaten asset coverage of bondholders if business conditions do not improve and a financial restructuring becomes necessary Few assets are available to be liquidated and significant amounts of operating leases and payables outstanding threaten recovery rates of bondholders in case of a liquidation Long-term issues about the structural business model need to be addressed more fully, i.e. competition with online businesses A liquidation is likely to result in very low recovery rates for bondholders due to potential structural subordination relative to other creditors Provisions in the hundreds of millions due to store closures will be made in 2012

Recovery

40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0%

Assumptions: Purchase of a bond at 500 per bond

Risk Mitigants
Experienced turnaround experts are already in place Focus does not only lie on cost cutting but also on stepping up investment in stores and trying out new concepts designed to improve customer experience

Other Considerations
During the 2011FY presentation CEO Fox and CRO Schultheis intend to stay until 2014 to make Praktiker kapitalmarktsfaehig [incentives are unclear] Miscellaneous figures Reduce central admin costs from 8% of revenue to around 4% Costs of closing down 25-30 stores estimated at 75mn, savings of 25% (?) Targeted rent reductions in Germany of 30mn p.a., so far 4.5mn abroad Previously estimated capital need of 375mn has been reduced to 300mn due to operational recovery; estimates are conservative, refurbishment costs per store of 400-800k depending on condition and previous underinvestment

Some funds (Maseltov and Semper Constantia) are actively engaging management and are willing to provide financing Several glaring operational weakness in various areas have been identified and are being addressed Abolishment of redundant systems, e.g. two headquarters Poor operations, e.g. inventory management, distribution infrastructure, conceptual flaws in Turkey

Potential financing methods include super-senior secured debt or convertibles Management will propose to raise equity capital at the General Meeting in May Management has thought about asking bondholders for a haircut vs. an interest rate reduction, but scrapped the idea due to legal reasons Likely to want to avoid wiping out shareholders

Existing liquidity position has allowed Praktiker to keep paying suppliers demonstrating its willingness to maintain good business relationships

Source: 2011 FY conference

For Personal Use Only

Source: 2011 Praktiker Investor Presentation

For Personal Use Only

Corporate Structure

Issuer

Source: Bond prospectus

For Personal Use Only