Dear Ladies and Gentlemen,

During the past 2006/2007 financial year, we addressed the situation, perspectives and strategic alignment of the company in great detail. We advised the Board of Management in its management of the company and monitored its conduct in accordance with the requirements of the law, the articles of association, and the code of procedure. At our meetings, the Board of Management provided us with regular, prompt and extensive written and oral reports on the business performance and the economic situation of the company and its subsidiaries. The Supervisory Board was involved in decisions of major significance for the company. Moreover, the Chairman of the Supervisory Board was in regular 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 consultations.

Meetings of the Supervisory Board
The Supervisory Board met on a total of five occasions during the 2006/2007 financial year. No member of the Supervisory 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 economic situation of the company, its business performance, business policy, investment and financial policy, as well as on the company’s risk and opportunity situation and its risk management on the basis of written and oral reports provided by the Board of Management. In addition, the Board of Management provided regular written and oral reports on the situation of the company and the development in its earnings and financial situation. Intensive discussions were held concerning those actions of the Board of Management requiring our consent. Following thorough examination and discussion of the proposals submitted by the Board of Management, the Supervisory Board then at its meetings consented to all of the respective measures.

At the meeting of the Supervisory Board held on May 18, 2006 to approve the annual financial statements, we dealt closely with the annual and consolidated financial statements in the presence of the auditor, as was also the case on May 23, 2007. The report of the Audit Committee on its work and the findings of its audit were also addressed. All of the questions posed by members of the Supervisory Board were answered in detail by the auditors. The report of the Supervisory Board, the joint corporate governance report of the Board of Management and the Supervisory Board, and the risk report were also discussed 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 14, 2006, the Board of Management reported on the current situation of the Group. In addition, the dates of the meetings scheduled for the 2007/2008 financial year were agreed.

The composition of the committees was newly determined at the meeting held directly after the annual general meeting.

The meeting held on December 6, 2006 focused on the discussion of the strategic 5-year plan compiled and presented by the Board of Management, which was subsequently approved. Following discussion and the forming of an opinion as to expected macroeconomic developments, and in particular the development of the DIY sector in Germany and the expected developments in the competitive situation, the strategic foundations of the 5-year plan were affirmed. The company’s expansion with DIY stores in the coming years will continue to focus on other countries. Targeted cost management is expected to lead to further reductions in costs. We believe that the store development expectations underlying the plan are realistic. Overall, all major key figures are expected to show improvements. At the same meeting, the updated Statement of Compliance with the German Corporate Governance Code was submitted pursuant to Section 161 of the German Stock Corporation Act (AktG) and then made available to shareholders on a permanent basis on the company’s homepage. Apart from a few exceptions, HORNBACH HOLDING AG has complied with and continues to comply with most of the recommendations of the German Corporate Governance Code. Only the following recommendations 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 individual basis, for which the company’s annual general meeting on July 14, 2006 approved a resolution approving the non-disclosure of the compensation of members of the Board of Management, and the setting of an upper age limit for members of the Supervisory Board. Further information concerning corporate governance at HORNBACH HOLDING AG can be found in the joint report of the Board of Management and the Supervisory Board on Page 14.

The final meeting of the Supervisory Board in the past 2006/2007 financial year, which took place on February 28, 2007, dealt with the company’s operating budget for the coming 2007/2008 financial year, including the financial and investment budgets and the decision-making process for new locations. The budgets thereby presented were subject to an in-depth review and subsequently approved.

Committees and Committee Meetings
The Supervisory Board has established three committees. The current composition of the committees can be found here.

The Audit Committee met on three occasions during the year under report. It discussed the annual financial statements of HORNBACH HOLDING AG and the consolidated financial statements, the management reports, the proposed appropriation of profits and the audit reports, including the dependent company report, in the presence of the auditor and of the Chairman of the Board of Management and the Chief Financial Officer. Its deliberations also focused on the company’s strategic and operating planning, the risk reports of the Board of Management, the reports compiled by the Board of Management on the financial situation of the company, and on internal audit reports.

The Personnel Committee did not hold any meetings.

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

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

Composition of the Supervisory Board
The retirement of Ian Cheshire, Albert Hornbach and Sir Francis Mackay from their positions on the Supervisory Board in each case upon the conclusion of the annual general meeting on July 14, 2006 necessitated the holding of elections. The annual general meeting approved the proposal that George Adams, member of the Management Board of Kingfisher plc, Christoph Hornbach and Dr. Gerry Murphy, Group Chief Executive of Kingfisher plc, be elected as members of the Supervisory Board to succeed the retiring shareholder representatives.

Annual and Consolidated Financial Statements
KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft (KPMG), Berlin and Frankfurt am Main, audited the annual financial statements of HORNBACH HOLDING AG and the consolidated financial statements as of February 28, 2007, as well as the management reports of HORNBACH HOLDING AG and of the Group, and provided them in each case with an unqualified audit opinion. The consolidated financial statements 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 to the 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 the annual financial statements included in the consolidated financial statements, the consolidation of capital, the calculation of deferred taxes, the correctness of the consolidated cash flow statement, the correctness of group segment 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 financial statements and audit reports were provided to all members of the Supervisory Board in good time. They were subject to detailed examination at the meeting of the Audit Committee on May 23, 2007 and at the subsequent meeting of the Supervisory Board held on the same day to approve the financial statements. The auditor took part in these discussions. He reported on the principal findings of the audit and was available to provide further information and to answer questions. Based on the findings of the preliminary audit undertaken by the Audit Committee and on the basis of our own examination of the documents provided by the Board of Management and the auditor, we did not raise any objections and endorse the findings of the audit undertaken by KPMG. We approve the annual financial statements compiled by the Board of Management for HORNBACH HOLDING AG and the Group as of February 28, 2007; the annual financial statements of HORNBACH HOLDING AG are therefore adopted. We endorse 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 relationships with associated companies pursuant to Section 312 of the German Stock Corporation Act (AktG). Neither this review nor 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 not incommensurably high
3. there are no circumstances in respect of the measures stated in the report which would indicate any assessment 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 the Board of Management at the end of its report pursuant to Section 312 of the German Stock Corporation Act (AktG).

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

Neustadt an der Weinstrasse, May 2007

The Supervisory Board
Gerhard Wolf
Chairman