Dear Ladies and Gentlemen,

During the past 2006/2007 financial year, we addressed the situation, perspectives and strategic alignment of thecompany in great detail. We advised the Board of Management in its management of the company and monitored itsconduct in accordance with the requirements of the law, the articles of association and the code of procedure. At ourmeetings, the Board of Management provided us with regular, prompt and extensive written and oral reports on thebusiness performance and the economic situation of the company and its subsidiaries. The Supervisory Board wasinvolved in decisions of major significance for the company. Moreover, the Chairman of the Supervisory Board was inregular contact with the Board of Management, and especially with the Chairman of the Board of Management,outside the framework of meetings to discuss significant issues and also to hold a number of consultationst.

Meetings of the Supervisory Board
The Supervisory Board met on a total of four occasions during the 2006/2007 financial year. No member of theSupervisory Board attended fewer than half of the meetings. No conflicts of interest arose during the year under report.

At our meetings, we held extensive discussions with the Board of Management and advised it on the economicsituation of the company, its business performance, business policy, investment and financial policy, as well as onthe company's risk and opportunity situation and its risk management on the basis of written and oral reportsprovided by the Board of Management. In addition, the Board of Management provided regular written and oralreports on the situation of the company and the development in its earnings and financial situation. Intensivediscussions were held concerning those actions of the Board of Management requiring our consent. Followingthorough examination and discussion of the proposals submitted by the Board of Management, the SupervisoryBoard then at its meetings consented to all of the respective measures.

At the meeting of the Supervisory Board held on May 17, 2006 to approve the annual financial statements, we dealtclosely with the annual and consolidated financial statements in the presence of the auditor, as was also the caseon May 22, 2007. The report of the Audit Committee on its work and the findings of its audit were also addressed. Allof the questions posed by members of the Supervisory Board were answered in detail by the auditors. The report ofthe Supervisory Board, the joint corporate governance report of the Board of Management and the Supervisory Board,amendments to the articles of association due to the exercising of share options, and the risk report were alsodiscussed at this meeting. The agenda for the annual general meeting, including the proposed resolutions, was approved.

At the meeting held directly before the annual general meeting on July 13, 2006, the Board of Managementreported on the current situation of the Group. In addition, the dates of the meetings scheduled for the 2007/2008 financial year were agreed.

The meeting held on November 28, 2006 focused on the discussion of the strategic 5-year plan compiled andpresented by the Board of Management, which was subsequently approved. Following discussion and the forming ofan opinion as to expected macroeconomic developments, and in particular the development of the DIY sector inGermany and the expected developments in the competitive situation, the strategic foundations of the 5-year planwere affirmed. The company's expansion in coming years will continue to focus on other countries. Targeted costmanagement is expected to lead to further reductions in costs. We believe that the store development expectationsunderlying the plan are realistic. Overall, all major key figures are expected to show improvements. The performanceto date of a new type of DIY megastore with a combined drive-in construction materials facility was also discussedin this context. This store type is an advanced stage of development. The measures initiated to achieve improvedsales/costs ratios by means of strict cost management and increasing sales have taken effect. At the same meeting,the updated Statement of Compliance with the German Corporate Governance Code was submitted pursuant toSection 161 of the German Stock Corporation Act (AktG) and then made available to shareholders on a permanentbasis on the company's homepage. Apart from a few exceptions, HORNBACH-Baumarkt-AG has complied with andcontinues to comply with most of the recommendations of the German Corporate Governance Code. Only therecommendations have not been complied with for the reasons outlined in the Statement of Compliance:the disclosure of the compensation of members of the Board of Management and Supervisory Board on an individualbasis, for which the company's annual general meeting on July 13, 2006 approved a resolution approving the nondisclosureof the compensation of members of the Board of Management, the setting of an upper age limit formembers of the Supervisory Board and the setting of parameters of comparison in the context of the share optionplan. Further information concerning corporate governance at HORNBACH-Baumarkt-AG can be found in the jointreport of the Board of Management and the Supervisory Board.

Furthermore, on the basis of the discussions held in the Personnel Committee, the meeting on November 28, 2006also appointed Susanne Jäger as a new member of the Board of Management for a period of five years starting onDecember 1, 2006, i.e. until November 30, 2011. The changes required in the business allocation plan of the Boardof Management as a result of the appointment of Susanne Jäger to the Board of Management were discussed indetail and approved.

The final meeting of the Supervisory Board in the past 2006/2007 financial year, which took place onFebruary 27, 2007, dealt with the company's operating budget for the coming 2007/2008 financial year,including the financial and investment budgets. The budgets thereby presented were subject to anin-depth review and subsequently approved.

Committees and Committee Meetings
The Supervisory Board has established three committees. The current composition of the committees can be foundon Page 70 of this Annual Report.

The Audit Committee met on three occasions during the year under report. It discussed the annual financialstatements of HORNBACH-Baumarkt-AG and the consolidated financial statements, the management reports, theproposed appropriation of profits and the audit reports, including the dependent company report, in the presence ofthe auditor and of the Chairman of the Board of Management and the Chief Financial Officer. Its deliberations alsofocused on the company's strategic and operating planning, the risk reports of the Board of Management, thereports compiled by the Board of Management on the financial situation of the company, the economic performanceof a new type of DIY megastore with combined construction materials drive-in facilities, and on internal audit reports.

The Personnel Committee held one meeting on November 28, 2006. This meeting discussed the appointment ofSusanne Jäger to the Board of Management for a term of five years and the related employment contract. Theemployment contracts with two members of the Board of Management, Steffen Hornbach and Manfred Valder, wereextended for a further five-year term in office. The fixed annual salaries of all members of the Board of Managementwere increased slightly as of the beginning of the 2007/2008 financial year (March 1, 2007).

It was not necessary to convene the Mediation Committee established pursuant to Section 27 (3) of the GermanCodetermination Act (MitBestimmG).

The Committee Chairman provided extensive reports on the work of the respective committee to the meetings of theoverall Supervisory Board.

Annual and Consolidated Financial Statements
KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft (KPMG), Berlin andFrankfurt am Main, audited the annual financial statements of HORNBACH-Baumarkt-AG and the consolidatedfinancial statements as of February 28, 2007, as well as the management reports of HORNBACH-Baumarkt-AG andof the Group, and provided them in each case with an unqualified audit opinion. The consolidated financialstatements were compiled in accordance with International Financial Reporting Standards (IFRS) as applicable in the EU.

Moreover, KPMG confirmed that the risk management system fulfilled the relevant requirements and that no risks tothe company's ongoing existence had been identified.

The audit for the 2006/2007 financial year focused on the delineation of the reporting entity, the correctness of theannual financial statements included in the consolidated financial statements, the consolidation of capital, thecalculation of deferred taxes, the correctness of the consolidated cash flow statement, the correctness of groupsegment reporting, the completeness and accuracy of the disclosures made in the notes to the financial statements,and the completeness and consistency of the statements made in the group management report. The financialstatements and audit reports were provided to all members of the Supervisory Board in good time. They were subjectto detailed examination at the meeting of the Audit Committee on May 22, 2007 and at the subsequent meeting ofthe Supervisory Board held on the same day to approve the financial statements. The auditor took part in thesediscussions. He reported on the principal findings of the audit and was available to provide further information andto answer questions. Based on the findings of the preliminary audit undertaken by the Audit Committee and on thebasis of our own examination of the documents provided by the Board of Management and the auditor, we did notraise any objections and endorse the findings of the audit undertaken by KPMG. We approve the annual financialstatements compiled by the Board of Management for HORNBACH-Baumarkt-AG and the Group as ofFebruary 28, 2007; the annual financial statements of HORNBACH-Baumarkt-AG are therefore adopted. Weendorse the proposal made by the Board of Management concerning the appropriation of profits.

Furthermore, the Supervisory Board also reviewed the report provided by the Board of Management on relationshipswith associated companies pursuant to Section 312 of the German Stock Corporation Act (AktG). Neither this reviewnor the KPMG audit gave rise to any objections. KPMG granted the following audit opinion:

“On the basis of the audit and assessment undertaken by us in accordance with professional standards,we confirm that

1. the facts presented in the report are correct
2. the performance of the company in respect of the transactions set out in the report was notincommensurably high
3. there are no circumstances in respect of the measures stated in the report which would indicate anyassessment significantly different from that made by the Board of Management.”

On the basis of its conclusive review, the Supervisory Board has no objections to the statement provided by theBoard of Management at the end of its report pursuant to Section 312 of the German Stock Corporation Act (AktG).

HORNBACH-Baumarkt-AG has achieved pleasing results in a highly contested market, especially in Germany, andhas once again asserted its position within its competitive environment. The Supervisory Board would like to extendits thanks and appreciation to the Board of Management and to all of the company's employees, both in Germanyand abroad, for their commitment and successful work in the past financial year.

Bornheim, May 2007

The Supervisory Board
Gerhard Wolf
Chairman