EVERGREEN FIBREBOARD BERHAD (217120W) (Incorporated in Malaysia) EXPLANATORY NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE FIRST QUARTER ENDED 31st MARCH 2006

A   INFORMATION REQUIRED BY FRS 134

1. Basis of Preparation
   The interim financial statements are unaudited and have been prepared in accordance with the requirements of FRS 134: Interim Financial Reporting and paragraph 9.22 of the Bursa Malaysia Securities Berhad Listing Requirements.
    
   The interim financial statements should be read in conjunction with the audited financial statements for the year ended 31 December 2005.
    
   The significant accounting policies, methods of computation and basis of consolidation applied in the interim financial statements are consistent with those adopted in the audited financial statements for the financial year ended 31 December 2005 except for the adoption of the following new/revised Financial Reporting Standard (“FRS”) mandatory for financial period beginning 1 January 2006.

FRS2	Share-based Payment
FRS3	Business Combinations
FRS5	Non-current Assets Held for Sale and Discontinued Operations
FRS 101	Presentation of Financial Statements
FRS 102	Inventories
FRS 108	Accounting Policies, Changes in Estimates and Errors
FRS 110	Events after the Balance Sheet Date
FRS 116	Property, Plant and Equipment
FRS 121	The Effects of Changes in Foreign Exchange Rates
FRS 127	Consolidated and Separate Financial Statements
FRS 128	Investment in Associates
FRS 131	Interests in Joint Ventures
FRS 132	Financial Instruments: Disclosure and Presentation
FRS 133	Earnings Per Share
FRS 136	Impairment of Assets
FRS 138	Intangible Assets
FRS 140	Investment Property

The adoption of FRS 2, 5, 102, 108, 110, 116, 121, 127, 128, 131, 132, 133 and 140 does not have significant financial impact to the Group. The principle effects of the changes in accounting policies resulting from the adoption of the other new/revised FRSs are discussed below:-

1. FRS 3: Business Combinations, FRS 136: Impairment of Assets and FRS 138: Intangible Assets.
   The new FRS 3 has resulted in consequential amendments to two other accounting standards, FRS 136 and FRS 138.
   In accordance with FRS 3, the Group ceased amortisation of goodwill with effect from 1 January 2006. Goodwill is carried at cost less accumulated impairment losses and is now tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired. Any impairment loss is recognised in profit or loss and subsequent reversal is not allowed. Prior to 1 January 2006, goodwill was amortised on a straight-line basis over its estimated useful life of 5 years. In addition, accumulated amortisation as at 31 December 2005 was eliminated with a corresponding decrease in the cost of goodwill.
    
   The carrying amount of goodwill as at 1 January 2006 of RM4,862,091 ceased to be amortised. This has the effect of reducing the amortisation charges by RM283,579 in the current quarter ended 31 March 2006.
    
2. FRS 101: Presentation of Financial Statements
   The adoption of the revised FRS 101 has affected the presentation of minority interest, share of net after-tax results of associates and other disclosures. In the consolidated balance sheet, minority interests are now presented within total equity. In the consolidated income statement, minority interests are presented as an allocation of the total profit or loss for the period. A similar requirement is also applicable to the statement of changes in equity. FRS 101 also requires disclosure, on the face of the statement of changes in equity, total recognised income and expenses for the period, showing separately the amounts attributable to equity holders of the parent and to minority interest.
    
   The current period’s presentation of the Group’s financial statements is based on the revised requirements of FRS 101, with the comparatives restated to conform with the current period’s presentation.

2. Audit Report on Preceding Annual Financial Statements
   The auditors’ report on the audited financial statements for the preceding financial year ended 31 December 2005 was not subjected to any qualification.
    
3. Seasonal or Cyclical Factors
   The Group’s business operations are not affected by seasonal or cyclical factors.
    
4. Unusual Items Due to their Nature, Size or Incidence
   There were no items affecting assets, liabilities, equity, net income, or cash flows in the Group that are unusual because of their nature, size or incidence during the interim period.
    
5. Changes in Estimates
   There were no changes in estimates that have a material effect in the current quarter results.
    
6. Debt and Equity Securities
   During the financial quarter ended 31 March 2006, there were no issuances, cancellations, share buy-backs, resale of shares bought back and repayment of debt and equity security by the Group.
    
7. Dividends Paid
   A third tax-exempt interim dividend of 8% or 2.0 sen per share was paid on  20 April 2006 in respect of the financial year ended 31 December 2005.
    
8. Segmental Information
   Segmental analysis is prepared based on the geographical location of the plant.

Current quarter ended 31 Mar 06 Previous quarter ended 31 Mar 05   Revenue RM’000 Revenue RM’000   RM’000 RM’000 Malaysia 74,676    78,832 Thailand 48,938    25,819   123,614   104,651

9. Carrying Amount of Revalued Assets
   The valuations of property, plant and equipment have been brought forward without amendment from the audited financial statements for the year ended 31 December 2005.
    
10. Subsequent Events
    In the opinion of the Directors, no material events have arisen subsequent to the Balance sheet date that require disclosure or adjustment to the unaudited condensed interim financial statement.
     
11. Changes in Composition of the Group
    There were no material changes in the composition of the Group during the current financial quarter.
     
12. Contingent Liabilities
    As at the date of this announcement, there were no material contingent liabilities incurred by the Group which, upon becoming enforceable, may have a material impact on the financial position of the Group.
     
13. Capital commitments
    The amount of commitments for the purchase of property, plant and equipment not provided for in the interim financial statements as at 31 March 2006 is as follows:

RM’000 Approved and contracted for 5,600 Approved but not contracted for  120,000   125,600

14. Significant Related Party Transactions
    Transactions that have been entered into are the normal course of business and have been established under mutually agreed terms that are not materially different from those obtainable in transactions with unrelated parties.
     

B   ADDITIONAL INFORMATION REQUIRED BY THE LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD

1. Performance Review
   For the quarter under review, the Group’s revenue grew to RM123.61 million compared with RM104.65 million recorded for the corresponding quarter in the previous year.
    
   The growth in revenue which represents an increase of 18.1% was accounted for by increased sales following the commissioning of a second production line in Siam Fibreboard Co Ltd (SFCL) in the second quarter of the previous year which had enhanced its production capacity.  SFCL accounts for 39.6% of the group’s revenue in the current quarter compared with 24.7% in the corresponding quarter of the previous year.
    
   The Group’s profit before tax of RM11.32 million represent a decline which is attributable to the increased in raw material & freight cost as reflected in cost of  sales and operating & administrative expenses respectively.
    
2. Comment on Material Change in Profit Before Taxation Against Preceding Quarter

Current quarter ended 31 Mar 06 Previous  quarter ended 31 Dec05   RM’000 RM’000 Revenue 123,614 122,820 Profit Before Tax 11,320 12,951 Net profit for the period 10,872 13,554

The Group’s revenue for the current quarter of RM123.61 million  represents a marginal increase of 0.6% from the revenue of RM122.82 million in the preceding quarter.

The Group’s profit before tax of RM11.32 million represents a decline compared with the preceding quarter. The negative impact of raw material cost on the Group’s profit before tax will be negated by product prices which have begun to improve.

3. Profit Forecast or Profit Guarantee
   The disclosure requirements for explanatory notes for the variance of actual profit after tax and minority interest and forecast profit after tax and minority interest and for the shortfall in profit guarantee are not applicable.
    
4. Commentary of Prospects
   The Group had introduced Enterprise Risk Management & Performance Management System with the objective of cost savings and to increase overall efficiency. Together with similar initiatives, the Group is poised to meeting new challenges in the market.
    
5. Taxation

Major components of tax expenses Current Quarter ended 31 Mar 06 Cumulative quarter ended 31 Mar 05   RM’000 RM’000 Current tax expenses 648 1,072 Deferred tax expenses (200) 99   448 1,171

The effective tax rate of the Group for the current quarter is lower than statutory rate mainly due to tax exempt status granted to most of the companies in the Group.

6. Unquoted Investment and/or Properties
   There were no disposal of unquoted investment and/or properties in the quarter ended 31March 2006.
    
7. Quoted Securities
   The Group has invested RM59.43 million in money market funds as at the current financial quarter. This investment is short term and low risk and the income derived there from is tax exempt.
   1. at cost RM59.43 million.
   2. at carry value RM59.43 million.
   3. at market value RM59.43 million.
       
8. Status of Corporate Proposal
   The Public Issue of 93,660,000 new ordinary shares of RM0.25 each in the Company at an issue price of RM1.14 had all been fully subscribed on its closing date on 25 February 2005 and the entire share capital of the Company of 480,000,000 ordinary shares were listed on the Main Board of Bursa Malaysia Securities Berhad on 10 March 2005. The Company raised RM106,772,400 from the public issue and utilization of proceeds as at 11 May 2006 (the latest practicable date not earlier than seven (7) days from the date of issue of this report) are as follows :-

Proposed Utilisation Utilisation as at  11/05/06 Balance   RM’000 RM’000 RM’000 Repayment of revolving credit & term loan 32,000 32,000 Nil Purchase of property & equipment 9,000 8,614 386 Listing expenses 5,208 5,208 Nil Group working capital  60,564 60,564 Nil   106,772 106,386 386

9. Borrowings and Debt Securities
   The Group’s borrowings are as follows: -

Current quarter ended 31 Mar 06 Previous quarter ended 31 Mar 05   RM’000 RM’000 Revolving credit Nil 27,500 Term Loans 56,192 66,784 Hire purchase & finance lease payables 1,151 714   57,343 94,998

10. Off Balance Sheet Financial Instruments
    As at the date of this report, the Group had entered into the following forward foreign currency contracts to hedge its committed sales & purchases in foreign currencies:-
     
    The following forward contracts sold are outstanding as at 11 May 2006:

Foreign Currency Notional Contract Amount Maturity Date US Dollar 7,000,000 May 2006 - September 2006

The following forward contracts purchased are outstanding as at 11 May 2006::

Foreign Currency Notional Contract Amount Maturity Date US Dollar 815,461 May 06 - July 06

As the foreign currency contracts are hedge for the Group’s confirmed export proceeds and import purchases, the contracted rates will be used to convert the foreign currency amounts into Ringgit Malaysia as and when they are taken up, on or before the maturity dates.  The difference between the contracted rates and the spot rates is minimal.

The Group does not foresee any significant credit and market risks associated with the above forward foreign exchange contracts as these contracts are entered into with credit worthy financial institutions.

          There is no cash requirement for the above hedging instrument

11. Changes in Material Litigation
    There is no material litigation pending as at 11 May 2006.
     
12. Dividend Payable
    The Board of Directors has recommended a 1st  tax exempt interim dividend of 2 sen (8%) per share  for the financial period ended 31 March 2006 The details of entitlement date would be determined and announced in due course ( 31 March 2005 : 12.5%).
     
13. Provision of Financial Assistance
    The Group had provided financial assistance as advances of RM1.3 million as at 31 March 2006 to its rubber wood log suppliers for guarantee supply of rubber wood logs to the Group.
     
    In January 2006, the Group had also provided a corporate guarantee to one of its associate company i.e Dynea Krabi Co., Ltd., (DK) with a maximum percentage of liability of 25% of the lower amount of either the loan of THB38,000,000.00 plus any unpaid interest at the time or the unpaid amount of the loan plus any unpaid interest at the time. This corporate guarantee is in favor of Dynea Chemicals Oy, a company incorporated under the laws of Finland which has given  DK a short term loan facility of  THB38,000,000.00
     
14. Status of application for extension of time for conditions imposed by Securities Commission on the Company’s properties
    Pursuant to Prospectus dated 15 February 2005 and subsequent announcements made on 31 October 2005 & 30 November 2005, the Group wishes to inform the status of all the conditions under item 7.1 iv (a) to  (g) imposed by Securities Commission with regards to the Company’s properties as follows:

Status of conditions under item 7.1 iv (a) to  (g) of the Prospectus dated 5 May 2005
i)	The transfer and register the properties for parcel no. 03-35, 03-36, 03-37, 03-39, 03-41, 03-43 and 03-45, Mukim of Plentong, District of Johor Bahru under the name of Dawa Timber Industries (M) Sdn Bhd is still pending.
ii)	The building plans for the structure situated on PTD 11229, Mukim of Seri Gading, District of Batu Pahat has been approved, pending issuance of certificate of fitness (“CF”).
iii)	A new building plan for the unapproved structure situated on lot no. 10321, Mukim of Seri Gading has been submitted for approval to the local council and subsequently to obtain its CF.
iv)	A new building plan for the unapproved structure situated on lot no. 10321, Mukim of Seri Gading has been submitted for approval to the local council and subsequently to obtain its CF.
v)	The building plans  for the unapproved structure situated on PTD 7183, Mukim of Seri Gading, District of Batu Pahat has been approved.

15. Earnings Per Share
     
    1. Basic
       Basic earnings per share is calculated by dividing the net profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares in issue during the period.

Quarter ended 31Mar 06 Period to-date 31 Mar 05   RM’000 RM’000 Net profit for the period attributable to ordinary equity holders of the parent 10,054 13,226 Weighted average number of ordinary shares issue 480,000 407,153 Basic earnings per share (sen) 2.09 3.25

2. Diluted
   Not applicable

By Order of the Board

Nuruluyun Binti Abdul Jabar (MIA 9113)
Leong Siew Foong (MAICSA 7007572)
Company Secretaries