Dear customers, business associates, staff and shareholders,

We are once again happy to be able to report on another successful year, in which we significantly extended our market leadership in South Eastern Europe. Entry to the Hungarian and Bulgarian markets has added two emerging economies to our international network. At the same time, opening new branches and offices in our existing markets has made our network denser. These factors have further improved our position as partner of choice for business in the countries of South Eastern Europe.
      Over a million customers – some 250,000 more than a year ago – now rely on the cross-border services of an international finance group with roots in Austria. In a relatively short time, we have established a very strong market presence in the region, thanks to our clearly defined corporate philosophy: a closely knit network covering eleven countries, with over 6,100 highly motivated staff on the ground, and a service approach geared to customer requirements that is unique in the region. Our success confirms that the »banking business is people’s business« approach we introduced over a decade ago is in no way less relevant in 2006, and indeed remains a decisive factor in a world of global competition. Our absolute nearness to customers, which is what enables us to develop custom solutions, will continue to be our paramount responsibility in the future.
      In 2006, Hypo Group Alpe Adria again posted an increase in total assets despite stiffer competition in all our markets in both banking and leasing segments. We also achieved our ambitious revenue and liquidity targets. At EUR 30.6 bn, year end total assets were up 26.3 % on a year earlier. This clearly reflects our strong standing on the markets we serve. The non-recurring costs of correcting the accounts for 2004, which took into account all the risks associated with the negative market values that arose in November 2004 on interest rate swap agreements, had an adverse impact on earnings, and meant that we fell somewhat short of our targeted profit. With operating profit of EUR 298.9 m and profit from ordinary activities of EUR 183.5 m, Hypo Group Alpe Adria is still one of the leading finance groups in the region. Its financial strength provides the sustainable basis for the Group’s continued expansion.
      Our foremost priority in 2007 will be to continue to pursue rapid qualitative and quantitative growth in existing markets and to add new national markets in the Alps to Adriatic region to our portfolio. Hypo Alpe-Adria-Bank International AG’s capital increase has raised issue proceeds of EUR 250 m so far, and has provided the financial resources to drive expansion forward.
      The share issue was taken up by a group of international investors represented by asset management company Berlin & Co Capital S.à.r.l., who like us believe in the enormous potential of South Eastern European markets. They share our appreciation of the region’s special features and the enormous opportunities it offers, and have an interest in the economic development of these countries. These private investors subscribed for the new shares in Hypo Alpe-Adria-Bank International AG in two tranches of EUR 125 m each. The second phase of the issue was completed in the first quarter of 2007, and they now hold a 9.09 % interest in Hypo Alpe-Adria-Bank International AG. With its owners, Berlin & Co Capital S.à.r.l., Kärntner Landes- und Hypothekenbank- Holding, Grazer Wechselseitige Versicherung AG through its subsidiary Hypo-Bank Burgenland Aktiengesellschaft and the Hypo Alpe Adria staff foundation, Hypo Alpe-Adria-Bank International AG has the stable and balanced ownership structure it needs in order to pursue its strategy effectively and to identify and exploit opportunities for expansion as rapidly as possible.
      As we move into financial 2007, a challenging new phase in the Group’s history is beginning. Entering the Hungarian and Bulgarian markets has extended our scope of operations to include a highly dynamic growth region with a population of over 70 million people. As a pioneer in the region, our support has been decisive in helping its countries develop over the past 15 years, and we are now in a position to benefit from their development. We already operate a closely meshed network that ties together eleven countries in South Eastern Europe. This means that our customers’ cross-border activities benefit substantially from our approach, which transcends linguistic and national boundaries: thinking internationally and managing transnationally have become second nature to the individual companies of Hypo Group Alpe Adria. Wherever it is in our customers’ best interests, our goal will therefore be to continue to strengthen our network – the leasing business will be extending its scope of operations in the very near future. Following the formation and subsequent launch of a leasing company in Macedonia at the start of 2007, we are already planning to enter the Ukrainian market with a leasing company. 
Our growth targets are not confined to regional expansion. Our strategic concern is to intensify our activities in our existing markets and exploit their potential to the maximum. Both banking and leasing operations will be opening new branches and direct marketing activities will be actively encouraged. Hypo Group Alpe Adria remains committed to organic growth, rather than acquisitions, while continuing to adhere to its tried and tested regional strategy. Our activities in all countries centre on a long-term approach and a straightforward philosophy – to provide simple and reliable financing and investment products to ensure our customers’ prosperity and success.
      We see the increasingly prosperous and rapidly growing middle class in South Eastern European countries as holding great potential for growth for Hypo Group Alpe Adria. In 2007 we shall be focusing on this steadily growing group, which is increasingly calling for high quality financing and investment products. New, custom tailored products will be added to our existing portfolio of services and products to cater to the needs of this discerning target group, as part of the drive to attract new customers in both banking and leasing segments in all Hypo Group Alpe Adria’s markets. As well as increasing market penetration with its retail customers, Hypo Group Alpe Adria is planning to increase staff numbers on the ground with the aim of growing its corporate customer business significantly.
      In 2007 our explicit goal is again to increase total assets, while improving earnings for all segments to an even greater extent. We aim to continue the encouraging performances of recent years in the future: our objective is to increase total assets by about 20 % each year and consistently improve earnings power. Our goal is a cost/­ income ratio of less than 60 % and a return on equity after tax of more than 15 %.
      We are well prepared for one of the most important upcoming challenges, the end of the Province of Carinthia’s guarantee. Hypo Group Alpe Adria’s management last year gave numerous international road shows to raise the Group’s profile in international capital markets and pave the way for future capital issues. This will permit the Group to continue to refinance a significant share of its liquidity requirements through the capital markets.
The strong standing that Hypo Group Alpe Adria enjoys in Southern European markets today is attributable to its clearly defined and carefully followed strategy, and to its courage in being one of the first international finance groups to provide banking and leasing services in the region. The virtually unlimited potential of the Alps to Adriatic markets today provides a solid foundation on which Hypo Group Alpe Adria can build its future successes. We continue to attach great importance to the key success factors: individual solutions, flexibility, a can-do attitude and rapid response times, coupled with respect for our customers and commitment to their financial wellbeing.
      That we are now one of the leading financial service providers in Central and South Eastern Europe, with about 1.1 million customers, we owe to the daily dedication of our more than 6,100 employees in 11 countries. I should like to thank you all for your hard work and commitment throughout last year, under difficult circumstances. I should also like to extend my gratitude to all our customers, partners and shareholders for their trust and support over the past year. You have my personal assurance that it is all your loyalty that has given us the strength and determination to pursue our chosen path to international success.


With best wishes