Business Overview

s. INFORMATION ON THE EFB GROUP s. INFORMATION ON THE EFB GROUP
5.1 IncorporatioD, Principal ActiYities aad Group Structure EFB was incorporated in Malaysia on 15 May 1991 under the Act as a private limited company under the name of Tat Wee Industries (M) Sdn BM with a registration number of 217120-W. The company cbanged its name to Evergreen Fibreboard Sdn 8M on 8 December 1992. Subsequently, the Company changed its status from a private limited company to a public company on 14 April 2004 and assumed its current name. The principal activities of EFB are manufacturing of MDF. knocked-down wooden furniture and doors. The subsidiary and associated companies of EFB and tbeir principal activities are as follows: Issued & P.kI.Up Effective Complny , Aritilor~ed Shart Equity” . Registntion nate And Place of OIPJtll Capital “‘~rest Principal Name’· Number “~corp’o..ation RM· RM’ ‘% Adivlties Subsidiary Companies All’ 567960-T 4 January 2002, 10,000.000 8,OOO,(l(W) 100.0 Manufacturing Malaysi, of particleboard EMf 32062.3-U 21 October 1994. 5,OCMJ,OOO 2,000,000 100.0 Donnan! Malaysia EDP 184661-A 22 July 1989, 25,000,000 10,300,004 100.0 Doffilant Malaysia SFe 0107554700961 16 January 2004, 1\ai Bah,” nai B.ab.u 75.0′” Manufacture of 367,000,000 367,000,000 MDFnailand R1SB-191543-V 30 December 1989, 10.000 500 99.99 Donnant Malaysia Associale Company DTI 32799-M 10 May 1977 2,000.000 600.000 44.61 lamination of fancy plywoodMalaysia and MDF NottS: • Unless otherwise stated •• Denotes the registered mare cflpita{ o/SFC which compri$f!s Qrdinary “nd preference shares
• Based OIllhe issued and paid-up ordinary mares o/SFC • Thi.J sllb:WJiary is in I/~ process ofbci”g wound·up

 

As at the date of this Prospectus, EFB has no otber associated or subsidiary companies other than as disclosed herein. 51
5. INFORMATION ON THE EFB GROUP (Conl’d)
5.2 SIIare Capital The authorised share capital of EFB is RM300,OOO,OOO comprising 1,200,000,000 ordinary shares of RMO.25 each. The issued and paid-up share capital of EFB would be RM120,OOO,OOO comprising 480,000,000 ordinary shares of RMO.25 each after tbe Public lssue. Details of the changes in the issued alld paid-up share capilaJ of the Company since its iDOOrporation are as follows: -,”Cumulative Issued and ‘. ‘ ,Par\Silue Paid-Up Share CapitalDati or~’lotment No. of Ordinary / Sbare Spift. S~8res Allotted R’M’ Consideration RIll., “‘. ‘ .~ 20/05/1991 4 1.00 Subscriber’s Shares 4 4105/1992 175,946 1.00 c..h 175,950 3/07/1992 12.214,140 1.00 C.'” 12.390,090 22107/1992 1.392,311 1.00 Casb 13,782.401 19/0811992 250.000 1.00 C,”, 14,032.401 20/01/1993 5,939,799 1.00 C.., 19,972,200 20101/1993 27,800 1.00 Other than cash 20.000,000 13105/1996 9,645.000 1.00 Bonus Issue 29,645,000 27/12’1999 355.000 1.00 Bonus Issue 30,000.000 2110912001 5,072,511 1.00 Other than cash 35,072.511 29/10/2003 190,000 1.00 Other tban cash 35.262,511 31110/2003 1,184,560 1.00 OlDer {han cash 36,447,07. 19/1112004 145.788.284 0.25 $bare Splil 36,447.011 2/1212004 240,551,716 0.25 Bonus Issue 96.585.000 5.3 Usting Scheme In conjunction with the objective of seeking a listing of and quotation for the EFB shares on the Main Board of the Bursa Securilies, the Company has undertaken tbe following: • Ska… Split The Company had sub-divided lis ordinary shares from one (1) existing ordinary share of RMl.OO each into four (4) new ordinary shares ofRMO.25 each. Thc issued and paid-up share capital of EFB after the Share Split is RM36,447,071 comprising 145,788,284 ordinary shares of RMO.25 each. The Share Split was completed on 19 November 2004;
The Company issued 240,551,716 new EFB Shares to the existing shareholders of EFB on the basis of approximately thirly·lhree (33) new EPB Shares for every twenty (20) EFB Shares held in EFB. The Bonus Lssue was completed on 2 December 2004. 52
5. INFORMATION ON THE EFB GROUP (Conl’d) Together with the above, the Company is also undertaking the Public Issue and OFS (which are the subject of this prospectus) concurrently, as follows: • Public Issue The Company will make a Public Issue of 93,660,000 new ordinary shares of RMO.25 each at the issue price of RM1.14 per new ordinary share, as follows: (8) The Malaysian Public 24,000,000 Public Issue Shares, representing 5% of the enlarged issued and fully paid-up share capital of EFB, will be made available for application by Malaysian citizens, companies, societies, co-operatives and/or institutions (of which at least 30% is to be set aside strictly for Bumiputera individuals, companies, societies, co-operatives and/or institutions) to be allotted via ballot. (b) Eligible Directors and Employees 6,000,000 Public Issue Shares representing 1.25% of the enlarged issued and fully paid-up share capital of EFB, will be made available for application by the eligible Directors and employees of the EFB Group. Where any eligible Director and/or employee of the EFB Group do not take up the Public Issue Shares allocated herein, those shares will be made available for application by the Malaysian Public. (c) Placees 63,660,000 Public Issue Shares representing 13.26% of the issued and fully­paid share capital of EFB will be made available for application as follows: (i) 10,660.000 Public Issue Shares at an issue price of RM1.14 per EFB Share by way of placement to placees identified by the Placement Agent, of which 30% is set aside for Bumiputera investors; and
(li) 53,000,000 Public Issue Shares by way of placement to Bumiputera parties approved by the MITI.

• OFS The Offerors are undertaking the OFS at the Offer Price of RM1.14 per EFB Share as follows: (i) 41,500,000 OFS Shares representing 8.65% of the enlarged issued and fully paid-up share capital of EFB by way of placement to placees identified by the Sole Placement Agent; and
(li) 71,500,000 OFS Shares representing 14.90% of the enlarged issued and fully paid-up share capital of EFB by way of placement to Bumiputera parties approved by the Mm.

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ICompany No: 217120-W I 5. INFORMATION ON THE EFB GROUP (Cont’d) The shareholding of the Offerors before and after the Public Issue and the OFS are as follows:
Notes: (1)  Deemed interested by virtl4e ofthe shareho/dings ofhis spouse and children in EFB pursuant to Section 6A oftile Act  (2)  Deemed interested by virtue a/the shareholdings ofhis ptlrents and siblings in EFB pursuant to Section 6A afthe Act  (3)  Deemed interested by virtue ofthe shareholdings ofherparents and siblings in EFB pursuant 10 Section 6A ofthe Act  (4)  Deemed interested by virtue ofthe shareholdings ofher spouse and children iff EFB pursuant to Section 6A ofthe Act
The 113,000,000 EFB Shares to be offered by the Offerors pursuant to the OFS rank pari passu in all respects with tbe other existing issued and paid-up ordinary shares in EFB. II
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5. INFORMATION ON THE EFB GROUP (Conl’d)
5.4 Business Oveoiew orThe EFB Group 5.4.1 History and Business Activities of the EFB Group The history of tbe EFB Group can be traced back to the incorporation of OTI in 1977 and subsequently tbo commencement of tho OTl’s operations in Pasir Gudang, Johor in 1978. The principal activities of the company were in the lamination of veneer over MDF. To caler 10 the increasing demand for veneered MOF, EDP was established in Pasir Oudang, Johor in 1989 to focus on the manufacturing of veneered door panels/door skins utilising MDF. The manufacturing facility was equipped with the capacity of producing over 20,000 door panels/door skins per day. In 1991. Evergreen Fibreboard Sdn Bhd was incorporated. The principal aceivity of the company was tben the manufacture of MDF aoo downstream products such as knocked-down wooden furniture. The manufacturing facility, localed in Parit Raja, Johor commenced production in 1993. In 1998, the Group started production of its knocked-down wooden furniture line. Subsequently, Evergreen Fibreboard Sdn Bhd converted to a public limited company, i.e. EFB in 2004. In view of expanding its operations, the Group utilised its experience in MDF and ventured into the production of molded MDF door skin panels by establishing EMf in 1994. As part of lhe Group’s restructuring exercise, both EDP and EMP ceased operations when their busiocss activities were acquired by EFB in 2001. In 2002. tbe Group expanded into tbe manufacturing of other reconstituted wood­based panel board products such as particleboard through its subsidiary, ATP. The production of particleboard commenced in 2003. On 26 February 2004, the Group subscribed for shares in SFc, a manufacturer of MDF based in Thailand, as part of a joinl-venlure. This was part of the Group’s plans 10 expand its operalions and markets to other parts of Asia. THE REST OF THIS PAGE IS [rrrE~’TIONALLY LEFT BLANK 55
5. INFORMATION ON THE EFB GROUP (Conl’d) A diagrammatic sunmiary ofthe Group’s business activities is depicted below: rriBdpal BllSillnn Acti.,iOO or EFB Group IManuflK-‘turing ofMDF I I Phlin MnF I Value-added MDF  Manuf.1eturing of Knocked l Manufacturing of 1 Particlcl>oard· Down Wooden Furniture I Plain Particleboard 1 Valu~-addcd Particleboard Paper oVl:rlay
I Veneered Mn..-(l, I Melamine MDF*(l) [ Paper overlay MOP)) ] Partkkboard Printed MDptl Melamine Look MOP5) CoatedlEmbossed MDP.~) Noles: • MUITuf=turing ofparricleboard and melamine MDF only commenced in 2003. Veneered MDF paneI.~ are laminated wirh veneer to provide rhe apJXarance ofnatural wuod. Melamine MDF pO/wly haw a laminated mela”lin” sw/ace that prOVides wear ami YCTatch r”sistance. “, Paper Ol’C!rlay MDF and particleboard pands are lumi’wreJ wilh ptlper depicting dC’corati\’e …oodgrain or colollrs. Paper o\’l!rlaypilTric1eboard is cw’re’lll}’ IJJedjor inrernal purpOYCS ollly, particularly in the m{fnuj=turi”g ojlmoclred-4own woodi:njur/firure. Printed MDF are panels wilh a prinredfinish using a roller-coated applicatiun. Melamine-look MDF (lIsa ust’~· the direct printing p!’oces,~ but with a higher qualiry finish and a Melamine-like finish. Coated/embossed thin MDF fXlmds are coaled with resin, ull/’a-violet or moisllJre re.fistam (,:QQlings. (Source: £ltraction of Buslnen Ol”l’n,jew of EFB, updo/ed 27 November 1004, prepared by Vilal Factor Consulting Sdn Hhd) THE REST OF nils PAGE IS INTENTIONALLY LEFT ,BLANK 56 5. INFORMATION ON THE EFB GROUP (Conl’d) For lbe year eoded 31 December 2003 and for the ten (10)-month period ended 31 October 2004, revenue contribution by each company within the Group is as follows:
Company  Re,’enue Contribution ror Year Ended 31 December 1003  Revenue Contribution ror Ten (10) 1Il00th period [Ilded 31 October 2004  EFB AU’  RM ‘000 242164 8582  “96.• 3.’  RM ‘OIJO 216.858 30,762  “68.9 9.8  EM!” ED SFe”’  — -. .  –66,960  . -21.3  TOTAL  250746  100  314.580  100
5.4.2
Notes: Total rewmue excludes imer-eomp(l/IY “allSQctions. ‘” EM? was acquired by EFB in 2()()J where its operations were then transferred to EFB. EM? lias si/lce been domumt, Heru:e, no revenue has been recortkd for EMP startingfrom 2001. ., EDP ….as acquired by EfB in 2001 where its operations were then traIlS/erred to EPB. EDP ha.t since been dornuJl1I. Hence, no revenue has been recorded for EDP swrtingjrom 2001. ,’! SFC CQmnfenctd operations only in 2004, For the year ended 31 December 2003, the Group exported 10, among otbers, China, Singapore. Japan, Taiwan, Vietnam, South Korea, Uniled States, United Kingdom. Jordan, Hong Kong, Sri lanka, South Africa, United Arab Emirales. Kuwait, Philippines, Saudi Arabia. Pak.islan. Indonesia, Tanzania and Thailand. For the year ended 31 December 2003. tbe Group’s revenue amounted to RM250.7 million. For the len (10) month period ended 31 October 2004, the Group recorded a revenue of RM314.6 million. The Group is constantly too~ng into areas for further expansion to address new opportunities in the wood industry. Priacipal Products The Group currently manufactures the following products: (a) Reconstituted wood-based panel boards:
(i) plain and vaLue-added MDF; and
(ii) plain and value-added particleboard;

 

(b) DoWDSlream wood-based products -knocked -down wooden furniture.

MDP is a type of reconstituted wood-based panel board manufactured from wood fibres, rather than particles or veneers, to produce board or sheet products that are bonded together with resin under high heat and pressure. Similarly particleboard, also referred 10 as chipboard. are panels composed of wood particles in the fonns of chips or shavings. bonded together witb resin and compressed into rigid sheets. Fine particles are usually laid 31 the swfaces of the panels 10 form dense layers, lbe less dense core is composed ofcoarse particles. 57
S. INFORMATION ON THE EFB GROUP (C””,’d) Knocked-down wooden furniture refers to complete and finished furniture items that are unassembled for ease of transportation and storage. A brief description of the Group’s reconstituted wood-based panel board products 800 their respective applications is tabled below: TvDt ofProdud  o..m…..  A  ‘Green Board’  Plain MDP! Particleboard board -wood composiles from wood fibres, glued together w>d” high temperature “d pressure 10 provide smooth, flat, uniform board structure -makes finishing operations easier & hilTher finished Dualitv  Furniture Le. tab:les, cabinets, windows, doors, toys, frames Exhibitioo slands, signages etc. High Ficlelity Equipment i.e speaker boKCS moulding, wrapping, laminated flooring etc,  ‘Ever-Ply’  Veneered MDF -cut and sliced from a wide fange of timber species  veneer  Furniture (‘Green Board’ above), high fidelity equipment, doors and paneling (in panicular architectural panels dltC 10 its flexibility)  ‘Ever-Mine’  Melamine MDF -MDF panels overlaid with low pteSS4Jre mellJItine that provides a prefinisbed hard surface lhal is ready-to­install, ,”” i’ ,.”. to maintain, high surlace-msisunce against stains “d “”””‘”  Furniture i.e. kitchen ~­.. …u.. shelves., built-ins.,partltlOO shclving “d f” tho construction indusuy Co< i”””‘” vertical application surfaces  ‘Ever·D6cor’  Paper! Overtay MDF -Ghte is used to bond the MDFI particleboards with light weigh.t decorative paper of a variety of colours aDd wood -grains  Kood:ed-dov.’U wooden furniture i.e. colour bo,. book””” .. shelves, cabinet backing paocls, dl1twcr bottoms, TV racks, office furniture as well as door skins  ‘Ever-Print’  Direct Print MOF -roller coater application for printing direct onto the MOF surface. The technology allows a wide range of applications, .””h .­backers, drawers, partitions and etc  Similar to Ever-Decor bUI with wider application such as backers, shelves, side 0′ front panel fo’ furniture industries: partitions, ceiling elements, interior panels for cars, etc  ‘Ever-ML’  Melamine look MDF -the exlended process of Direct Printing to provide bigh qualify surho:::e lIS an alternative 10 original melamine MDF  furniture i.e. kitchen cabinets, cupboards. shelves, pmitions, built· iDs., paneling, elc.  ‘Ever-Prime’  Coated I Embossed MDF -thin MOF. rut into door skin sizes are Prime Coated or ughtJDee:p Embossed with the usage of eavironmental friendly water-based primer! surfacer Ihal meets international standards  Door skins, drawers, interior fumiture. general paneling, etc
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5. INFORMATION ON THE EFB GROUP (Conl’d) The breakdO’wn of the Group’s turnover by products and services for the year ended 31 December 2003 and for the ten (10) month period ended 31 October 2004 are as follows:
Negligible Others include Printed MDF. Melamine-Look MDF and MDF Door Skins. Production ojMDF Door Skins was discontinued in 2003, Sales oj MDF Door Skins were mainly derived from leflover inventory. Value-added Particleboard is cummtly used internally (within the Group) for the manufacture ofknocked-down wooden furniture, hence it is not included in the revenue breakdown. In 2003, production of doors was discontinued. Sales of doors were mainly derived from leflover inventory, (f) Others include veneer sheets and lamination services. THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK 59
5, INFORMATION ON THE EFB GROUP (Conl’d)
5.4.3 Supply of Raw Materials aDd Fmisbed Prod.ct! Following are the raw materials used for the manufacturing operaLiol\S of the Group for the year ended 31 December 2003: Raw ft1altrllb by Valult of Ptreentage Son«s of Supply T)’pt Purtll:lSft of Total Group Rlw ftbtrrialJ Parchurs­1..,,1 Ilnpert %RM’OOO RM”tlOO % RM’OOO UF ~ J0736 31.4 8.606 28 , lJO 72′” Rubberwood 102S 30,470 J04m31.2 100 –VeDOCr 10″-1 13,345 13,34513.6 –’00 V””” 4,893 5.0 636 13 4.257 87 P r Oveda 4 188 43 1.550 37 2.638 63 Chi m 2,792 7.2 100 –Emulsion 2.’ 2,578 2.6 2,s78 100 -WulHarde.oer Ed-C/Foil 1.5 1,236un .. ­236 16 Cartoo Boxes 1.lO5 1.3 1.lO5 100 –om,,, 6,026 5,9666.2 99 60 I Tolai 100.0 S513997 5 666 56.,.Total local po~”:”~jptrcntagt of total _Itraw ml.ltrials tel …,.Tow import I*I’Chues as a ~ge of total lU’OUD raw _ttriaIs PWTuses Following are the raw m:lIcrials used for the manufacturing operations of the Group for the ten (10) month period ended 31 October 2004:
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5. INFORMATION ON THE EFB GROUP (Conl’d) Not”: UP  :  Urea Formalddlyde  PVC:  Pol)(lIinyl ddorik)  •  Based Off raw mnterials excluding fue~ eleclridty and other consumobles which amounted to RM97.805 milliQn and RMI20A12 million for the yeor ended 31 December 2003 and for Ute ten (10)­month period ended 31 Oc~r 2()()4, respec1i~~ly.  ••  &1Jberwood logs purcluJsed for SFC’s CotUllfnpr;on sou.rced locaJly I” ThaiJaIId.
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5. INFORMATION ON THE EFB GROUP (Conl’d) 5.4.4 Operalion Process The process flow for the manufacturing of MDF by the Group is depicted in the following diagram: Debarking Chipping Boiling and Refining
Drying Mat-forming •
Pre-Compressing and Hot Pressing ScreeningII Thickness 1 Gauaina I Cooling •
Inspection Adjustment )
! Packaging and Despatch (i) Oda,king Rubberwood branches and logs are flfSl fed into a debarker to strip the bark off Ihe branC’.hes and logs and eliminate the rubber or latex beneath. The debarked nJbber branches and logs are then sent for chipping 10 break the branches and logs into smaller wooden particles or chips. 62
5. INFORMATION ON THE EFB GROUP (Conl’d) (ii) Chipping The wooden chips are then screened and washed. In the screening process, oversized wooden chips, uDdesired grit. metal and other foreign particles are removed. (iii) BoUbog and R’f”,ing Mer lhe screening and washing process, the wooden chips an: senl for trealmenl in a pressurised boiler. Thereafter. lbe steamed wooden chips are grouod to fibres in lbe refiner. Carefully formulated bin~ and additives sucb as resin and wax are mixed with the: fibres, immediately after refining. Precise control and usage of binde~ and additives are critical as the adhesive COSi coRStitutcs a significant portK)n of the manufacturing costs. (iv) Drying During this process, the: mixture is subjecled 10 precise conlroUed blasts of hoi air i.n order 10 obtain (he required moisture conlent. Subsequenlly the dried mixlure passes through a sifter to cosure a continuous flow of mixture 10 Conn a three-layered mal on the fOmUng and press lines. M Mat-forming In mat-forming, the multi-layered mal is passed through the pre-<=ompressor which squeezes out trapped air. The purpose of prc-compressi.ng is to consolidate the mat and reduce its height. These processes are fully­automated to produce a fine arK! consistent surface with evenly distribuled fibres and colL’>istent density. (vi) Pre-Compressing and flOl Pressing! CooIingl Thfckntss Gauging The layered mat is Ihen fed into a tTaybell to undergo hot pressing to fonn boards based on the desired thickness. lbe high temperature in the pressing process cures the resin. The boards are cut into specified panel sizes and gauges to ensure consistent board thicknesses are achieved. Any inconsistency in the board thickness is passed baek to the mat-fonning stage Cor re-adjustments. The accepted boards arc then cooled on the cooling wheel. (vii) Trimmingl Adjustment In the final stage of the manufacturing process. boards are trimmed 10 final size and sanded to give a smooth finish. An inspeclion after the standing S1age is done at this point of the production line before the boards are sealed and packed into cartons. ‘The rejects are sent for re-work at the trimming stage. (viii) PaclaJging anil1)nptJtch Ooce the packing process is completed, the finished goods are labelled ror warebousing and storage before being despalcbed. The equipment and machinery have gone through litlle change over the last few years as Ibe machinery aDd Icchnology empJoyed by the Group have long life spans. 63 5. INFORMATION ON THE EFB GROUP (Conl’d) 5.4.5
5.4.6 5.4.7 Approvals, Major Licenses, Permits aod Statull of CompUaoce The Group has obtained licences and registratioltS to manufacture MDF and its related products and furniture and to cxport them abroad, with the key ones being from the Mm, Forest Department, Atomic Energy Ucensing Board and the Malaysian Timber Industry Board (“MTIB”). For further information on the salient terms of the above licences including other licences, please refer to Section 7.2 of this Prospecrus. The wood industry is highJy regulated. As such, the Group places high dependence on these licences. Thus, revocation or non-renewal of licences would serve as a threat to organisations within the wood industry comprising the licensees, including the Group. Clauses for revocation and non-renewal are set out by the relevant autborities, namely the MITI, Forestry Department, Atomic Energy Licensing Board and MTm. As loog as the licensees within the wood industry comply with aU requirements as well as ex.erci.se good corporate citizenship, their licences would nol be unrC3S0nably revoked or 11()( renewed. As such, the threat from revocation or non-renewal is mitigated by strict compliance with the Licensing terms and conditions. Historically, the Group has never experienced any instances where their licences were not renewed. Patents, Trademarks and Franchises The Group has no registered patents, trademarks, franchises or intellectual properties in relation to its products or processes. Principal Markets aDd Market Sure 10 2003, tbe market size based on produclion of MDP in Malaysia was estimated at 1.5 million cubic melres. As sucb, in 2003, the EFB Group’s market share of MDF in MaJaysia was approximately 16% ba~d on its production of 246,391 cubic meters. In 2003, based on production, the EFB Group ranked second among manufacturers within the MDF Industry in Malaysia. (Source: Extraction of Assessment of tile Reconsnruted Wood-Based Panel Board lndusrry, updated 27 November 2004, prepared by Vital Factor COfl.Sulting Sdll Bhd for incl/4swn in this Prospectus). The breakdown of revenue by local and export markets for the year ended 3J December 2003 and for the ten (10) month period ended 31 October 2004 are as foUows: Revene Contribution to the  Revenue Contribution to the  Group for the Year Ended 31  Group for the Ten (10)  Deeember 2003  month period Ended 31  Oetober 2004  Markets  RM’OOO  ‘Y.  Rl\l’OOO  %  Malaysia  38,088  15.2  55,950  17.8  Outside Malaysia  212,658  84.8  258,630  82.2  Total  250,746  100.0  314,580  101),0
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5. INFORMATION ON THE EFB GROUP (Conl’d) Note: For IJ~ ~or ended 31 Dearnber 2003 andfor tile len (10)-month period elided 31 October 2004, revenue of tile Group of RMl50. 7 million and RM3I4.6 millioll, respectively, excludes inter-Cbmpany transactions.
Exports primarily comprised plain and value-added MDF, particleboard and knocked-down wooden furniture. The products are marketed through the Group’s wide and established network of customers comprising distributors, importers. wholesalers and retailers. For the year ended 31 December 2003, cltpons conlribuled 84.8% of the EFB Group’s tOlal rcvcnue. The Malaysian markct contribuled the remaining 15.2% of the Group’s revenue. For the ten (10)-month period ended 31 October 2004, eltports contributed 82.2% of the Group’s revenue, whilst the local market accounted for 17.8% of the Group’s total revenue. Some of the countries the Group exported to for the year ended 31 December 2003 and their respective contribution towards the revenue of the EFB Group are as follows: “”un China Singapore Japan Taiwan Vitlllam Korea United SUItes Jordan United Kingdom Hong Kong United Arab Emirates Kuwait Philippines Saudi Ambia Ot””~ remota or EFB Grou ‘s n\·e.tf; ~ 225 12.8 S.l 7.0 5.1 3.5 3.5 3.2 2.2 2.2 2.2 2.1 1.6 13 7.7~ Some of the countries the Group exported to for the tcn (10) month period ended 31 October 2004 and their respective contribution towards the revenue of the EFB Group are as follows: Countrv  Perceota  % of EFB Grog’S revc.ue  China  19.9  Unittd States  9.S  Vietnam  6.6  Taiwan  5.0  Kuwait  4.2  Koca  4.2  Japan  4.0  Saudi Arabi;J  4.0  Pakistan  3.S  Jordan  3.5  United Arab Emirates  3.5  Hong Kong  2.6  Philippines  2.2  United Kingdom  2.1  Singapore  1.2  Others  5.6”
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5. INFORMATION ON THE EFB GROUP (Conl’d) 5.4.8 Note,s: * Others inchuJe countries dial contributed, in fotal, kss lfum 7.7% of total Group fe\.’enue for the )’eQr ended 31 December 2003. This includes Pakistan, Syria, India, Bahrain, Iran, Lebanon, Thai/and, Mauritius, Canada, Belgium, Spain, Sri Lanka, Tan:ania, Sudan, Mexia>, Cambodia, Qatar, Portugal, Guadalupe, Australia, Ballg/odesh, Brunei, Chile, anum and Turkey. •• Others include cowftries dial contributed, in totaL less tllan 5.6% of final Group revenue for the)IeD’ ended 31 (ktober 2004. This includes Bahrain, Indonesill, 1m/ill, Iran, Thailand, BelgWm, Lebanon, Ireland, Spain. MauriliMs, Australia, Oman, France, Sri Lanka, Greece, Canada, BIIngladesh, Czech Republic, Latvia, Brune~ Switurland and Cambodia. The EFB Group is relatively dependent on the China market. This is reflected by the fact thai for the year ended 31 December 2003 and ten (10)-month period ended 31 October 2004, China contributed 22.5% and 19.9% of total Group’s revenue respectively. However, .he EFB Group services a wide spread of customers within aLina. For the year ended 31 December 2003 and ten (10)-month period ended 31 October 2004, the Group’s China market comprised 82 and 70 customers respectively, In addition to Cbina however, the EFB Group has an exteosive coverage of mark.et that extends to 38 countries including Malaysia for the teo (10)-month period ended 31 October 2004. The coverage of different markets helps the Group to minimise the dependency on anyone particular country or groups of countries. Competition (8) Competitors Operators in the reconstituted wood-based panel board industry (including the manufacturing of MDF) face normal competitive conditions. As wilh most free enterprise environments, competition is based on quality of products and services. cost competitiveness, prompt delivery schedules, manufacturing capabiUlies as well as customer convenience. Generally, competition among operators in the manufacturing of MDF is moderate to high. This is substantiated by the following factors: (i) Factors that Moderate Competition As at November 2003, there were approximately 10 manufacturers of MDF in Malaysia. The small number of operators in this indusuy moderates the competitive intensity. This is primarily due 10 the high barriers to entry into the industry in tcrms of capital set­up requirements. MDF has diverse applications whereby they are more superior in terms of ease of working with the material, cost competitiveness, and the abiJity 10 add value 10 1be material especially through (be lamination of a top sbe<:l. As sucb, its versatility creates preference over other competing allcmatives. Manufacturers are in a competitive position if they can meet the following: conform to international quality standards including meeting acceptable international standards for fonnaldchyde emission; meet the requirements and specifications of customers;
66 5. INFORMATION ON THE EFB GROUP (Conl’d) (b) and ability 10 satisfy large volume orders.
This will somewhat moderate the competitive intensity for such manufacturers. (ii) Factors that htcrease CompeUtion As MDF are primarily cxport-oriented, Malaysia faces significant competition from overseas countries. Overseas competition increases the competitive intensity for operators in the industry. MDF competcs with other types of wood·based materials, for example high density fibreboard, wood cement board, oriented strand board. laminated board. particle board and sawn limber. MDF also competes with other oon·wood based materials, for example plastics, metals and glass. All these alternatives increase the competitive pressure for MDF manufacturers. (Source: Exrro.t:tion of AsseS$tni’nt of rlJe Recbnstituted Wood­Based Panel Boord Industry, updated 27November 2004, prepnred by Vital Factor Consulting Sdn Bhd for inclusion in this Prospectus) Barriers to Entry Barriers to enlry into the reconstituted wood-based panel board industry are moderate to high. This is mainJy substantiated by the relatively few number of manufacturers in the industry. As at November 2003, operators in the reconstituted wood-based panel board industry in Malaysia comprised the following: 10 MOP manufacturers; 7 particleboard manufacturers; and 6 wood cement board manufacturers.
The main barriers to entry into the reconstituted wood-based panel board industry are: (I) Government policies Apart from the manufacturing licence and other wood-based industry and export licences, there are no other specif.c Government regulations and policies governing the entry of manufacturers of recoosliluled wood-based panel board A manufacturing licence is ouly required by companies with 75 or more employees or companies with a share capital of RM2.5 million or more. (ii) Capital..,·.p “”‘” Capital sel-up costs for the manufacture of reconstituted wood­based panel boards arc high. Setting·up a smaU-sized MDF manufacturing plant would cost between RM60 million and RM70 mUlioD (excluding 67
5. INFORMATION ON THE EFB GROUP (Conl’d) (iii) land and building). At lhis level of entry, the capital investment is for one basic, full line of MDF production, which will generate an annual output of 6O,(X)() cubic metres of MDF. SeUing-up a medium-sized MDF manufacturing plant would cost between RM120 million and RMI50 million (ex.cluding land and building). At this level of entry, the capital investment is for one full line of MOF production which will generale an annual output of 100.000 cubic metres of MOF. Capital costs will escalate for larger operations. Smaller manufacturers wiU lind it difficult to compete wilh larger manufacturers that have the advantage of economies of scale. In addition, larger manufacturers are also in a stronger position to meet lhe export market requirements for higher volume of production. Thus, the high capital set-up cost even for a small sized manufacturing plant will pose as a barrier to entry for new entrants. Technical skills aod kaowkdge The level of technical skills and knowledge required in the manufacturing of reconsHtuted wood-based panel board is moderate to high. Technical skills and knowledge are required in the areas of researcb and development and production processes. Manufacturers that continually conduct research and development on existing prodltCts as well as new products or applications are in a stronger position 10 address oppor1unilies and compete effectively in the global market. Some examples of research and development are as follows: the ability to produce MDP that has a lower emission of formaldehyde compared to the current 10 to 30 milligrams of formaldehyde emission per 100 grams of dried fibre. This type of fibreboard will be largeted al countries including Japan and Europe; the usage of different types of recycled raw materials to produce MDF; and new applications sueh as high moisture resistance MDF. Other areas of technical skills and knowledge is in the production process and some of these include tbe following: the control of temperature and tbe moisture level of resinated fibres to control the thickness of the fInished fibreboard; 68
5. INFORMATION ON THE EFB GROUP (Conl’d) (c) the control of the supply of raw materials is also critical to achieve consistency in tbe quality of tbe finished fibreboard. (e.g. the blending of chips, sawdust and wood shavings which must adhere to a ratio to ensure consistency in the panel quality. Sawdust and wood shavings is used as par1 of the supply of raw materials to help control moisture contcnt and fibre size distribution); and optimising pressing operations through improvements in processes. Manufacturers tnat have the technical slills are more likely to achieve lbe following: reduce their cost of production; attain higher product quality; anain higher productivity; beuer able to meet customers’ specifications and requirements: and provide a wider range of products to help customers address aleas of growth and opportunities. As such, barriers to entry may be moderate at its most basic, but the ability to sustain the business would require higher levels of skills and expertise. (Iv) Track record Track record also forms one of the barriers to entry for new entrants. It is unlikely that a new entrant witllout any track record will be able to compete effectively in the global mark.et for reconstituted wood-based panel boards. II will take some time for a Dew entrant to establish itself in the martel before customers arc willing to take them on as Q supplier. As such, track record would pose barriers to entry for new entrants, who would fmd it difficult 10 gain immediate access into the market. Baniers to Exit Barriers to erit for the manufacturing of reconstituted wood-based panel boards arc high. This is because of the relatively smaU number of mallufacturers wilhin the reconstituted wood-based panel board industry, The machirtCS and production lines used can be sold only to a limited Dumber of operators within tbe industry. (Source: Extraction ofAssessmem of the Reconstituted Wood-Based Panel Board Industry, updated 27 November 2004, prepared by Vital Factor Consulting Sdn Bhd for inclusion in this Prospectus) 69
5. INFORMATION ON THE EFB GROUP (Conl’d) (d) Compditive Advantage Tbe competitive advantages of tbe Group are as follows: l} Prod.ct Qulity The EFB Group can attest to its product quality through tbe following: tbe EFB Group’s manufacturing operations adheres 10 ISO 9001 qualily management systems; tbe standards of quality of tbe Group’s MDF and PanicJeboard can meet the requirements of export markets and overseas customers: (tnd the formaldehyde cootent of its MDF complies with. international limit specified by British and European standards. Consistent high product quality is a significant competitive advantage tbat will create high customer satisfaction to ensure continuing business patronage. U) Di,…. M…k'” Coverage The EFB Group has an cxtensive coverage of the market that extcnds to 38 countries including Malaysia for the ten (10) month period ended 31 October 2004. The coverage of different markets helps too Group to minimize the dependency on anyone particular country or groups of counlries. iii) Luge Customer Base Based on the tcn (’10) month period ended 31 October 2004, th.e EFB Group has a large customer base compri.slng approximately 459 local and overseas customers. During the same period. the lop 10 ~omers of the EFB Group accounted for RM92.9 million of its sales, representing approximately 29.6% of the Group’s turnover while the remainder 70.4% is spread across approximately 449 customel1l. This providt$ the EFB Group wilh the ability 10 sell its products 10 a ready customer-base. iv) Market Reputation and Establisbed Track Record With approximately 27 years of experience in the wood-based industry which started with tbe commencement of operations of DTI. the EFB Group has suceessfuJly established a reputable track record associated with quality and reliability. As such, the Group can leverage on its track record to win potential customers, providing tbem with the assurance and collfidence of tbe quality of its products and the reliability of its services. 70 5. INFORMATION ON THE EFB GROUP (Conl’d) v) Researt. aad DeveloplDellt Capabilities The EFB Group is constantly undertaking research and development to improve on its products to better meet customer needs and identify areas of opportunities. This requires the ability 10 keep abreast of dcvelopments in Ute new value-added products for example rugh moislUre resislant (“HMR”) panels that are suitable for applications such as external doors, flooring, window frames, kitchens, amongst others. More importantly the Group also has the capabilities to continually improve on manufacturing processes for example usage of alternative raw materials, new technologies and new types of glue to meet the requirements of the market and customers. (n addition, the Group also undertakes various types of mechanical and physical property testing of final products to ensure Ihnt it meets the properties tnal are specified by customers. (Source: Extraction ofAssessment of the Reconstituted Wood-Based Panel Board Industr)’. updared 27 November 2004, prepared by Vital Factor Consulting Sdn Slid for inclusion in this Prospectus)
Since the beginning of its operations, the Group placed significant emphasis on quality. Stringent quality controls are implemented in each and every area of its operations. This is reflected by the fact that EFB was accredited with the ISO 9001 :2000 certified by SGS United Kingdom Limited. The Group has an experienced quaJity assurance team to monitor its production processes in accordance with. ISO quality management systems. Some of the quality lests undertaken by the Group include: (a) Medumic:aJ Property Tesldg Modulus of Rupture to determine the bending strength; Internal bonding testing to detennine the resistance to tension perpendicular; Screw belding to determine tbe resistance of panel products 10 axial withdrawal of screws; Surface soundness tesl to assess lJ1e surface soundness of uncoated panel products.
(b) Physical Property Testing Thickness swelling testing to determine the level of swelling of panel products under water imtnelSion; Water absorption testing to determine the level of absorption of panel products under water immersion; Moisture conlent testing to detennine the moisture content of panel products: Density testing to determine the level of panel products density; Surface absorption testing to determine the surface absorption of the panel; Formaldehyde emission testing 10 delermine tbe quantity of formaldehyde emilled from panel products.
71
5. INFORMATION ON THE EFB GROUP (Conl’d) As at 17 January 2005, there were 83 personnel in the Quality Assurance team within the Group focusing on ensuring the standard of product qualily meets the expectatiorLS of cUSComers. In addition, tbe Group also complies with industry ~andards which further reinforces the Group’s ability to meet with the needs and expectations of its customers: (a) EFB h~ obtained Cb.aiD-of-CUNtody (“CDC”) certified under the Quality Forest Management (Qualifor) Programme by 50S South Africa. The programme is accredited by the Forest Stewardship CoUDcil (“,FSC”).
(b) The fonnaldehyde content of EF’B’s MDF meets with the required international standards. This is tbe ‘estill of a test undertaJcen by an independent laboratory. i.e. Furnilure InduSlry Research Association (“FlRA”) International Umiled on tbe formaldehyde content of MDF.

5.4.10 Research and Development (a) Group polky aDd objectives Research and development plays an important role for t!’le Group, particularly to create and sustain competitive advantages through tbe following: (i) continuous improvement in product quality to ensure customer satisfaction; (il) increase operational effectiveness, efficiency and productivity to minimise costs; (iii) continuously enhancing cxisting products to bener meet the needs of customers; and (iv) develop new products to address areas of growth and opportunities. Selection ofRaw Materials The EFB Group also undertakes R&D in using other wood species for its manufacturing activities. For the production of MOP and Particleboard, the Group uses mainly rubberwood togs of small­diameter and rubberwood branches. which are unsuitable for wood furniture manufacturing. Some of tbe objectives for R&D in this area are: 10 reduce its costs; and 10 create higber value-added products to reduce impact of competitive pressure from other manufacturers. especially those in lower cost producing countries, thus enhancing its competitive advaotages. 72
5. INFORMATION ON THE EFB GROUP (Conl’d) (b) Relevant iecbologies tor prodlJttioo (I) Resin Blending Binders, which are either Urea Formaldehyde or Phenol Forroa.ldehyde resins. are mixed wilh addictives 10 form glue or ad~ivcsfor tbe binding of wood particles. ]n blending resin-wood mixture, precise control of quantity in the mixture is necessary, as greater resin content would resuh in a stronger, more water resistant product. However. the resin is heavier and, more importantly more costly lhan the wood­component, so it is desirable 10 minimise the quantity of resin used. The Groop uses UF-based glue for the production of MDF and particleboard. The Group has successfully formulated additives with minimal formaldehyde emissions during the blending of resin with wood particles. As a result. the Group intends to actively develop MDF with El standard, which complies with the European emission standard. Under the provisions of the Hannonised European Standard prEN 13986, the formaldehyde release from wood-based panels used in internal applications is classified as either Qass E1 or Class E2. The limit value of emission is as follows: El S 0.124 milligrams per cubic metre air; and E2?: 0.124 milligrams per cubie metre air. (ii) Particleboard Production System In Ole manufactuIiog of pal1iclcboard, the Group employs modem, automated chip washing, two-slage chip and flake screening, as well as fine flake sifting process 10 enhance the surfaces and overall quality of the particleboard. The use of automated chip washing allows efficient removal of dirt, sand and stones. The two-stage chip and Dake screening ensures efficient checking and quality control of contaminant removal from chip washing. Contaminant removal is important for improving the appearance, runnability and printability of particleboard. Fine flakes sifting process further enhances the smootb.ness and desirable weight of the flakes for the case of board formation. (Ui) Fu”,iI… MaD.r.<luriog The Group also undertakes research for lhe manufacturing of knocked-down wooden furniture as pan: of the earlier development of downstream activities. 73 5. INFORMATION ON THE EFB GROUP (Conl’d) (c) The GrouP’S specialty in knocked-down wooden furniture lies in ils combination of thin MOP with thick particleboard as core framcs. This method of production has substanlially reduced the weight of the furniture compared to solid wood furniture and reduces material cost and wood content oftbe products. Ov) AutomaUOD, Equipment aDd Machinery To achieve greater economies of scale and to service a sizeable markct, manufacturers like the Group, rely significanHy on specialised equipment, machineries and automation. As such, the GfOtIP has made significant investments in equipment and machineries such as: PaUman Refiner & Bison Mende press system for thin MDF and particleboard production: Andrilz Refiner & Dieffenbacber press system with steam injection for thin and thick MDF and pariicleboard production; Kikukawa and Kitagawa furniture and veneer production lines from Japan; melamine and print lines; and splicing machillC$ 10 produce fine veneer joints. Facilities a_d Persouel The Group has in-house facilities that allow them to undertake R&D, develop prototypes. and test prodocts. Some of tbe mechanical and physical testing undertaken In the Group’s lesting laboratory on reco~ituted wood panels includes the following: density; moisture content; thickness tolerance; emission level; dirneJL<;ion lolerance; surface finishing; viscosity control; resin absorption; intemal bonding strength; stain resistance; screw holding; porous resistance. As pari of its research and developroenl for furniture. the Group also has facilities for the design and development of furniture prototypes. The Groop’s R&D activities are undertaken by personnel with extensive experience and expertise in product design. detailing, development and prototyping. They are supported by the Group’s production line supervisors on areas such as manufacturing and marketing. The Group has 83 personnel in ils R&D team as al 17 January 2005, and they are also members of the Quality Assurance team. 74
5. INFORMATION ON THE EFB GROUP (Conl’d) (d)
(e)

Development ofNew Products The Group is continuously involved in R&D of new products 10 cater to the diverse needs and requirements of its customers. Some of Ihe products that have successfully undergone R&D and are currently in full production include the following: (i) MDF, plain MDF; paper overlay MDF: direct print MDF; melamine laminated MDF; veneered MDF; coated MDF; and embossed MDF;
(ii) Knocked-down wooden furniture: shelves; television cabinets; display cabinets; television racks; shoe racks; and book cases;
(ill) Doors: veneer doors; sketch face doors; pre-finish doors; and moulded doors;
(iv) Particleboard: plain particleboard; and paper overlay particleboard.

On-Going Researth And Development (I) Prodttct Quality aDd Custootisatio. The EFB Group is constantly undertaking R&D on improving the product quality of its existing product range, aimed at meeting the discerning needs and preferences of customers. The areas of R&D are focused on: improvement on (he grades and surfaces of MDF and particlebo..ud; development of new value-added MDF and particleboard; and improvement on binder and blending formulation for MDF and particleboard productions. In addition. the EFB Group also offers product customisation in thickness. finishing, size, lamination. colour and weather resislance. 75
5. INFORMATION ON THE EFB GROUP (Conl’d) The Group usually tests out different formulations and addilives with a small sample run before full production takes place. Quality conlrol is evident at every stage of the manufacturing where in­bouse product lesting and development for strengtb, surface quality and moisture content are undertaken in detail. (U) IlDproviug Manufacturing Processes The Group continuously focuses on process improvement, particularly in enhancing its manufacturing processes. This is crilicaJ as it has a direct impact on manufacluring efficieocy, effectiveness, productivity and product quality. As such. tbe Group undertakes R&D tbrough: selection of process flow best practices: research in new technologies and machineries in improving the effectiveness, efficiencies, productivity and quality in the manufacturing processes; continuous evaluation and improvement of eristing processes and procedures to optimise wor.kflow; process re-engineering to increase efficiencies in the production process; and incorporation of quality conlrol processes. (I) Proposed Future Researtb And Development EFB Group proposes 10 undertake R&D to extend its current range of products by developing the following new products: (I) MOF witb El grade Tbe Group intends to carry 001 R&D activities on manufacturing MDF to colltinually improve El Slandard. It intends to launch El Grade of MDF by end of 2005. Areas of R&D 10 be undertaken by tbe Group logether with lbe resin supplier 10 produce Ibese products, include: fonnulating tbe desirable ralios of resin and adhesives to acbieve the required bonding strength with wood particles ami reduce the level of fonnaldchyde emission in manufacturing MOF; product testing and laboratory analysis of chemical emission from wood panels under the following factors: binder type; temperature Itumidity; panel thickness; and percentage of chemical concentration;
76
s. INFORMATION ON THE EFB GROUP (Conl’d) in-depth study on the resin blending formulation that reduces the level of formaldehy<Je emission v.iicn mixed with wood parlides for MDF produ;;tion; and Internal and independent testing of product for compliance with Gass £1 standard within the Hannoniscd European Standard prEN 13986. On 22 October 2001, a sample of 15mm MDl’ manufactured by BFB Group has been tested fur the follmving (,ontents and standards through Furniture Industry Research Association (FIRA) International Limited: (a) total extractable formaldehyde content, using the duplicate determinations method described in BS EN 120:1992; and
(b) the formaldehyde content was within the limit specified in BS EN 622-1:1997, for a Class A MDF, i.e the average Perfurator Value for at least 3 boards is oot greater than 9 miligrams1100 grams of board after correction to a moisture rontent ofi:l-“i%,

 

In line with the Group’s expaosion into downslream activities, the Groop plans to lmdertake R&D in new knockcd-dowo wooden furniture desigos. Currently, the Group manufactures the following range of knocked-down wooden furniture: shelves; television cabinets~ display cabinets; television racks; shoe racks; and book cases.
The Group intends to manufacture new furniture del,ign within the existing range: of knocked-down wooden furniture fl.” well as a new range of knocked-down wooden furniture, where the Group is focusing on the following R&D: development of prototypes~ managing quality ofthe products; and verifying environmental claims namely the use of sustainable plantation wood as the raw material for furniture production, and monitoring of prodoct quality (:umpliance with industry staodarik The new design is expected to be launched by the end of 2006. 77
I Company No: 217120-W I 5. INFORMATION ON THE EFB GROUP (COllt’1() (iii) High MoistlU’e Resistant MDF The Group imends to carry out research and development activities to develop high moisture resistant (HMR) MDF. This y,11.1 enable the Group to widen the applications of its MDF products to include those that arc exposed to higher levels of moistufc including enernaJ doors, bathrooms, kilchen and window frames. The Group intends to launch HMR MDF by end of 2005. (g) Research And Development Expenditure The amount of R&D expenditure of the GrQUP for the previous year was expensed off in the cost of prodoction. Details are as follows: FYE200l FYElOO:! FYE2003 FP/l’ :lOO4 (11M) (11M) (IL\1) (11M) c…….”‘_..
Purchase oftesting 90,455 75,176 222,706 10,404 equipment Operational expeBditQl’e Personnel salaries/wages 26,700 27.550 29,000 845,794 Test marerials 42,922 ~,521 46,.O(}7 57,968 TOTAL 160,077 143,247 297,713 914,166 NIJU: , FPE -Ten (IO) nwnthperivd ended31 ooOOef’ 2()(J4 5.4.11 Interruptions in Business For the Past Twelve (tz) Mf)oths There has been no interruption in the business which had a significant effect on the operations of the Group during the past twelve (12) months prior to the date of this Prospectus. 5.4,12 Employees As. At 17 January 200S The EFB Group is committed in providing its personnel with the opportunityror training and career advancement, as it believes that people are the Group’s most valuable asscis, It has grown from a 350-person operation In 1993 to its rurrent total staff strength of2.076 (excluding DTf). mE REST OF THIS PAGE IS l1’o’TENTIONALLY LIlFf BLANK s. INFORMATION ON THE EFB GROUP (Conl’d) The BFB Group currently has the following number of employees: -;No. ‘\­Category M1IlaysiaD Malaysian <Total No {Ifyears 5«Yice Mlillagement/ Professional 48 8-12 19 67 Thchnkal and Supervisory 218 6-8 85 3ill Clerical 86 3-5 29 115 Skilled Wmws 213 5-8 106 319 Semi-skilled Workers 620 3-5 428 1.<)48 General Workers 159 2-4 65 224 TOTAL 1,344 732 2,076 MOst of the membcrn of the management team have been with the EFB Group &:incc the cstabli1>lunent of the Group’s business,. and have gained experience in and understanding ofthe industry in which the Group operates. EFB Qrnup’s employees are not members of any trade unions, and to date no industrial disputes have transpired throughout the Group’s twelve ye-ars of operations. The average number of years of service of its key employees is about nine to twelve years.
Tire Group had condoocd various training programmes to enhance ill; employees skills and knowledge. Tabled below are some of the major programmes conducted for the employees of the Group: , TypeOfPrqgramme Obj«tive Dfprogramme I_. m. .. .-..——1 : CommlUlical~ English Programme TQ enhance the Gro~P.’s employees’ eotnmllll!~loo skills. : Undetstandlng of ISO 9001:2000 To create awareness amongst: all employees of the Gwup’s 1 Stmdards {l\l.a1itv mana.rement ~~. …..~–,-,-i OcctJpational Safety and Health (“OSH”) To provide awareness of the OSH r~UirenltlDt5 and to I nrC\lent worknlace h~I’t1$.”””-c=-o~-~7 ~=:ffi.::C:cl 4. Forklift Safety & Certificate Progran1Ine To train certaill employees of tbe Group on the handling of !orkJifts witbin tile n~~i$¢’l: offhe Group. 5.
6.
7.

 

79
5. INFORMATION ON THE EFB GROUP (C”””d) As management believes that knowledge is .a fundamental element in improving operational efficiency, the employe-es of the Group attend various other courses such as computer courses, leadership programmes and other technical CQurses.
5.4.14 Key AcbievementiM.iJ.estoaeslAwards (0:) Sustainable Forest Management and FOlUt CertifkatioD On:; Fe1m.ll:lry 2003, EFB was issued the en(: which was certified under the QuaHty Forest Management (Quali.for) Programme by SGS South Mrica. The progrnllllJiC is accredited by die FSC. The CoC certifICation for El'”‘B will expire on 26 December 2007. (b) ISO 9001<2000 EFB obtained the ISO 9001:2000 ce-rtiftcatkm on 21 October 2002.
The tested sample reflecls the Group’s capability in producing low emission MDF using Urea Formaldehyde (UF)-based resins of low formaldehyde mntent. The level of UP emissinn complies with the level of emission required under BS EN622-1:1997 standards for a Class A MDF.
5.4.15 Marketing Stnltegies and Dlstn”bution Networl\ (i) Marketing Strategy The sales and marketing team of the EFB Group utilises tbe following marketing strategies to sustain and expand the Group’s business: positioning the Group as a one·stop shop manufacturer with a wide range of MDF. Particleboard and value-added products to meet the requirements and ueeds of.customers; capitalising on the Group’s continuous ability to provide the highest quality of prodncts and services to estahlish its reliability as a supplier, titUS creating long-tenn customer loyalty and dependency; and Expanding its market presence overseas and developing new business opportunities by ‘Wurking in dose partnership with existing customers. Some of the promotionai and marketing activities undertaken by the Group Include: proactive sales visit to potential customers; participation and attendance in various trade shows to cultivate new cuslomers and foster relationship with existing customers; and free promotional samples, leafl()ts and brochures.
80
S. INFORMATION ON THE EFB GROUP (Conl’d) Since 2001, some of the trade shows that the Group has participated in include: ~–~.~~~~;.~-~–·”-‘–Nam~’~.~f~T~’~””‘_S~h~.~W~~__ T~’:·t,y ;I Exhibited ill 2002, 2003 IMalaysia lntemat;~al Furniture Fair (rI-‘llFF) hcl~ in: Malaysia ­and 2004 Put!a Wor~~.Irllde (‘-entre. Kuala Liinpur’__”‘j’hhihited in 2000 and Malaysian Furniture Export Exhibition (MAFEX) Malaysia : 2~…1…-. I ,he~,19 in.MillC’S, Kuala Lumpur “….. L -J As at 17 January 2005, the EFB Group has approximately 33 sales and marketing personnel in its sales and marketing division to foCtls on new business development. (ii) Distribution Network The distribution strategy of tbe Group is based on direct and iodirect distribution. Currently, tbe Group utilises its OWii sales personnel to foem on locai and major overseas markets and indirect channels such as agents t-o focus on various markets overseas. The Group’s direct distribution strategy involves sales to local and overseas Ctlstomers compl’ising mainly retailers of the hypermartets, furniture manufacturers including laminators.. traders, disttibutors, and .interior designers, As at t7 January 2005, the Group bas approximately 32 agents coveri.ng overseas countries, The (‘rroup is Dot heavily dependent on anyone particular agent for the distribution of its products, since revcnue from the top agent lK’,counted for 17.3% of the total Group revenue for the 10-month period ended 31 October 2004. For the tcn (W) month period ended 31 OL.1ober 2004. revenue contributed by indirect dislribution such as agents accounted fur appro:titmttely 78.7% of the Group’s total revenue. The remainder 21.3% is througb direL.1 distribution. The use of agents as an indirect distribution channel is a common practice for most industries for their export markets. Thlsis based on the following rationale: it enables the Group to achi:cve a faster market entry overseas with the ability to cover a diversity of markets; the Group would be able to optimise on its sales and marketing resources to focus on larger markets; and this enables the Group to continue its foclis and strengthen on its core competency of manufacturing. 81
5. INFORMATION ON THE EFB GROUP (C”””d) 5.4.16 Production/Operation Capacities aDd Output (ij Property ADd f..ocatioo The manufacturing facilities of the EFB Group are located in Malaysia and Thailand, details of which are as fulklws:
EFB DTI •L .._-..L MOP, value-added MDF Jil’Odu<-“1s and kliOCked-dowll I–_….!wood~!!! en furniture Value-added MDF produetl! .Io’w1—~–c.·–~–~—·+·~4~17~!~1l~2~.1~1 MOP All’ Particleboard L>cation ofFadlities PL022 Pan’r Raja Industrial Eslate 86400 Pan”t Raja. BatuPal\at, Johm PLO 416 Jalan SUas>!
.Kawasan PerindIlStriau Puslr Gudang 81700 Pasir Gudang 3 Karncltaua”,anicb Rd TumoolPalong. Amphur Hatyai Songkhla 90230 Thailand PLO 202 Segamat Industrial Area U 85000 Segamat Jooor
N01NOOO&91, Jalan Gangsa Dua, FAA!r Vatue-4idded MDF &: g InduslriaI Park, Gud”” plywood p’oo””” I 81700 Pasif Gudang, Johl)f Appruximate 8oilt­.~p’Area (acres) 27,4  5  45  , • I  23 1.52
The Group’s manufacturing operation.. include fOllr manufacturing: plants in Malaysia and one manufacturing plant in Thailand, The Thai plant housed under SFC, was acquire<l in February 2004 and l-‘Otnmellced operatIons in March 2004 producing mainly MDF, In Malaysia, one manufacturing plant produces MDF, one plant manfaci:ures particleboard, and the other two plants manufacture value-added products. (ii) Operations Capacity A<;. at 31 December 2003, the production, capacity and utilisation of facilities for the EFB Group’s major products are as fuJloVi<–s: Types: of prool,lcti’! MOF  AnnttaJ Ca~ity 280,000 cubic metres”  ProdUdion fur IT 2003 246,391 cubit metres~  UtilisatJml (%1 88  Knocked·down v,’oooon furniture  1,200,000 sets  862,223 sers~  72  ,  Particleboard  144,000 cubic ttIl:tres  38,526 cubic metres  27
82
I Company No: 217120-W I 5. INFORMATION ON THE EFB GROUP (CQnt’d) As at 31 October 2004, the production, capacity and utitlsaiion of facilities for the EFB Group’s major products are as foUo’W”S: Types of products  Annual Capacity  Estimated Proooction fM  Utilisauoo  Fl’ 2004  t%\  Malaysia; 280,000  Malaysia:  Malaysia:  MDF  cubic metres” Thailand:  238100 cubic metres@ Thailand:  85 Thailand:  162000 cubic melres  138400 cubic metres””  85  Knocked·down W<:lOden fumiture  1,800,000 sets  1,183,900sets”@  66  ,  Particleboard  144,000 cubic me~  93,400 cubic metres·’ “*  65
NQtes: Th<: a1Jove production is based on tM.’O 12·hoUT shifts per drJY • Based on averrJge ofall tire vorying sizes, models and se15 ofknodu:d·dowN wooden /Uminue producM. ExtrapaItt.ted l1aml on 10 mt>t.ffls tufna!pl’t’Xiw::mm ended 31 October 2()()4 Extmpoi.ated based on 7 mont1ts flCtualpNxim:tion ended 31 October 2004 Depending on the type of products. the EFB Group’s production lines currently run on either two 12*hour shifts, 7 days u week or two 8-hour shifts, 6 days a week. I’rklr to SFC beooming a subsidiary, the Group was running at 88..0% of its MDF production capacity, The acquisition of SFC’s MOF operations have further supplemented and provided additional capacity to the Group’s existing MDF production tines. I’I:ris ‘Will enable the Group to cater for future eXJmnsion. As at 31 October 2004, the Group is currently running at 85% of its capacity for its MDF production, in Maiaysia and in ThaiJ.and. 5.5 Infurmalloo •• SubsMllnry a””_ted C__ Information on the subsidiary and associate companies of EFB is set out below (save for RlSB which is in the process of being voluntarily wound*up): 5.5.1 ATP (i) HlsUlryawl_ ATP was incorporated in Malaysia on 4 January 2002 under the Act as a private limited rompany with a registration number of 567960-T. ATP was established when the Group decided to expand its products to suppJement the existing knoc:lted4wn wooden fi:lmiture which was at that time being purchased from external suppHel’5. TIle move was also to meet the increasing market demand botb JocaUy and o’lferseas for particleboards. 5. INFORMATION ON THE EFB GROUP (C”””d) (H) Share Capital
-y-‘ Par’Value ,AM ‘~-“&
Authorised 10,000.000 1.00 10.000,000 Issued and Paid-up 8,OOO.rJOO 1.00 8,000,000 The changes in the issued and paid-up share capital of ATP since its incorporation arc as follows: PO’ Value iRM,~* t ll+-, 0410112002 2 1.00 281031W02 2,999,998 1.00 01/10/2002 5,000,000 1.00

(iii) I’rioclpal Acllvit…. The principal activity of ATP is the manufacturing of particleboards.
ATP is a lOO%-owned subsidiary of EFB. The Dir«tors of ATP and their respecHve shareholdings are set out below:-
Nlime Lim Seok Ruan
loon Kuo len Cbang lOCto Kuo len Chip 100.0 Chuah LiangHee Mary Henerletta lim Kim Nco NoW; (1) Deemed interestetJ by virtueofher Iuuhand’s sub$Umtidl sharelwlding in EFB {2J IkWfle.d interestl!’A by vit1:ue oftheir substantial shart!JlOfding m EFB
84 s. INFORMATION ON THE EFB GROUP (Conl’d) (v) Employees As at 17 January 2005, ATP has a Imal of234 employees as tabled below: RaDgelJf N~.or Year$ itl f”C:”at”‘….:”ri.,..!..~”””—:—:~__~~~~_~ __~ ‘OOS: Somre-‘ Managerial and Professional 8 8-10 Technical and Supervisory 40 6~S Clerical and reWed occupatiOlls (e.g. clerks, typisi, 19 1-2 titen~n:, peniOllill SCCfClaries. etc.) 1~7 1-2 ­Total 2.. ‘ –,~—–“,’ fnduJingyeMS ofsenice in the EFB Group (vi) Subsidiary and Associated Companies As at tbe date of this Pl’OOpCCWs. ATP does not have any subsidiary or associatedoompanies. 5.5.2 EMP (I) J&tory and__ EMP was incorporated in Malaysia on 21 October 1994 under tbe Act as a private limited company with a registration number of 320623-U. EMP produced doorskin out of MDF fur the export market (Ii) Shan Capital ,N~4~ry ,1 SIiim;rk”ir . A ~i~'”
Authorised 5,000,000 1.00 5,000,000 Issued and Paid-up 2,000,0()(} 1.00 2.000.000 The changes in tbe issued and paid-up share capital of EMF since its incorporation are alS follows:
26fOll1995 1.249,998 1.00 1,251),(100 17/1011997 750.000 LOO “”” 2,000,000″”” (Iii) PriJJcipal Actlvitl.. The intended principal activity of EMP Wl:IS manufacturing of molded door skin panels. The oompany has ceMed its operations and is dormant. 85
5. INFORMATION ON THE EFB GROUP (C”””d) (Iv) Din”‘.” _ Submmlial Shareholders EMF is a l00%«owned subsidiary of EFB.Thc Directors of EMP and their respective shareholdings are set out below:
01’.’111′<–….. ~>,I: No of;”~'(‘ \ …… .,..; NAme f, .. ‘,hares % Kuo Jeu Chang KuoJcnChiu MOOdAJkafbln Mood Kabar Mary Henerietta Lim Kim Neo N”‘-‘ (l) Deemed Werefild by-virtue oftheir substmIilal share1wlding iff EFB (v) Employ_ As EMP is currently dormant, the company does not have any employees as at 17 January 2005. (vi) Subsidiary aDd Associated Companies As at the date of this Prospectus, EMf does not have any subsidiary or associated companies. 5.5.3 SF(; (I) History and Business $PC was incQrporated in Thailand on 16 January 2004 as a private limited iXlDlpany ‘Wlm a regisiralion number of 0107554700%1. (n) Sb…. CaplW tt
h .*Fl)).
‘::.” Valul” , ai Baht Registered 100

 

(a) Ordloary S!uLr<o
86
S. INFORMATION ON THE EFB GROUP (Conl’d) The changes in the issued and paid-up share capital of SFe since Its incorporation are as follows:
The changes in the ~~ed and paid~up preference shares of SFC since its inoorpor:ation are as follows: ;. Par

tiv”..!’ 4Jp SDMe.
No. of ;::”Iid,’alae CapltalPref…….~;’,ai
‘:’•… sllan.AIlotto!i;'”T… B”‘!t 367,000 100 ,. ,’, ,•.­36,700.000 The actual value of the preference shares is 278.48 Thai Bahts per preference share., which translates the total value of the preference shares to 102,202,160 Thai Bahts. The dividends: attaclled to the preference share is 8,354% per annum fur the period of fiw (5) years. Preference shareholders are entitled to one (1) vote per preference share held, which is similar to the ordinary shareholders. The preference shares in SFC issued to STA MDF Co. Ltd (‘SMC”) and STA Furniture Group Co. LId (‘SFOC’) have the following. rights:­(i) every one of the preference shares may be converted to ordinary shares in SPC;
(ii) SMC and SFQC are entitled to sell their preference shares to MP Particle Board Co. Ltd and EFB within onc year from 26 February 2004 by notice in writing and upon such notice. MP Particle Board Co. Ltd and EFB are entitled to purcltase the preference shares at 278.4$ Thai Bahts plus premium of 8,354% per annum of the par value; and

(til) MP Particle Board Co. Ltd and EFB are entitled to buy the preference shares from SMC and SFGC at any time starting from 26 february 2004 but before 26 February 2009 at 278.48 Thai Bahts plus premium of 8.354% per annum ofthe par value. 87
5. INFORMATION ON THE EFB GROUP (C”””d) (iii) Principal Activities The principal activity of SFC is the manufacturing of MDF. (iv) Directors and Substantial Shareholders The Directors of SFC and their respective shateboldings are se1 out below;· K\lo Huei Chen  2,477,2500>  75.0*  Chieog Ikng NltIlg Ampom Kattjanaku.mnerd  1  •  825,74(jl2}  25.0·  [sara Woog.kusonk:ij  Saharat Phenktll  Nmes.
Deemed interested by wine of their substamiol mureJwlding in EFB(1) (.Ii Deemed infereskd try virtue ofhis subsumtial skareholding in MP Particle Board C(JII’Ip(Uly Limited

• Negligible Shares are held in trusffor EFB The substantial shareholders of SFC’s ordinary sbares and their shareholdings are set out beluw: .,;’.,~ laduilt”t” <–~…:.:.NJj~t~~’·: “-l,,,..r ‘)%. ,i<.,Ill…… #,~i!I’li’ £FH 2.477,248 75,(1″ MP Particle Board 825,749 25,0· Company Limited
The substantial sharebolder of SFC’s preference shares and its snareboldings are set out below::

THE REST OF THIS PAGE IS INTENTIONALLY LEFl’BLANK 88 S. INFORMATION ON THE EFB GROUP (Conl’d) (v) Employ'” §. ~ . CA ries. .. Managerial and Professional . Technical and Supervisory r Gerical and related OCCtJpatlons (e.g. ‘ cl_typist, ~l”‘f’Olll’l  No. or -‘~mployet!J 17 81 29  Raage(tfYtars Irt Servke” 6 -s: 4 -6 3 -5  seqetancs. etc.)  ~General  204  2 -3  T….=­ …;;3J::’:-.  .J
As at 17 January 2005, SFC has a total of331 employees as tabled below: …­Including years served in the mmpany from which SFC’s assets were  acquired,  (vi)  Subsidiary and AssoclaW Companies  As at the date of this Prospectus, SFC does not have any subsidiary or  associated companies.  5.5.4  EDP  (i)  History and. Business  EDP was incorporated in Malaysia on 22 July 1989 as a private limJted  company with a registration number of184661-A  (Ii)  Sure Cap!…
No. of”””..11:1\*’ s~~·  V…..•.•·.:l’;..~,., M  A……. kkRM 41~’-­ Authorised  25,000,000  1.O{)  25.000,000
10.300,004  1.00  lll,3OO,OO4
[ THE REST OF TH[S PAGE [S INTENTIONALLY LEn BLANK 89
5. INFORMATION ON THE EFB GROUP (C”””d) The changes in the issued and paid-up share capital of BOP since its incorporation are as follows: Dau ..!.: ,t~~~fl£:~ C Subscriber’s22/07/1989 4 HID 4Shares 23112/1989 900,000 1.00 cnsb 900,004 5/04/1990 100,000 1.00 cnsb 1,000,004 30/06/1990 1,400,000 1.00 cnsb 2,400,004 15/1211990 1,600.000 1.00 cnsb 4,000,004 28102/1991 1,000,000 HIO Cash 5,000,004 3OI1QJ1991 910,392 LOO Om’ 5.91Q,3% 27105/1992 869,608 1.00 c.”, 6,780,004 29/09/1992 20,000 1.00 c.”, 6.800,lJ04 W!OO/1997 3,500,000 1.00 Other than cash 10;300..004
(Ill) l’rIncipal Activitie. EDP is currently dormant.

EDP is a l00%-owned snbsidiary of EFB.Thc Directors of EDP and their respective shareholdings are set out bclow:­
<–Difkt1-> <r:_~.dirett-~:fi,-: Nt). of –fl,~~1_”.­sharts No.J:~_i\’.-rtlS ,*Jt. Kuo Wen Chi 10300,004(1) 100.0 Kuo Jen Chang 10,300,004(1) 10110 Kilo Hue! Chen 10,300,004(1) 100.0 KuoJenCbiu 10.300,004(1) 100-0 fr~ Kau a.oo HIDg Mary Henerietta Lim Kim Nco Kuo Jen fiui 10,3oo,004{Z) 100.0 Nbtts: (1) Deemedinte1’eswl!1yvirme oftheir$4bstantidl8hareholdinginEFB (2j Deemed inrereh1ed by virtue of his siblings’ ~timtia1 wrdwlding in £FD
As EDP is currently dormant, the company does not have any employees as at 17 January 2005. (vi) Subsidiary and Associared Companies As al the date of this Prospectus, EDP does not have any subsidiary or associated companies. 90 S. INFORMATION ON THE EFB GROUP (Conl’d) 5oS.S DTI ro HlslOryand_ DTt was incorporated in Malaysia on 10 May 1977 as a private limited oompany with a registration number of32799-M. (II) Share Capital
The changes in the issued and paid-up share capital of DTI since its incorporation are as follows: lL DateOl\jy~~· ,.
Value AIIo~·~; ; R:N ;2; Con.l_~” Subscribe;’s 10105/1977 2 1.00 Sh””, 18/08/1978 299,9913 1.1)0 ea.m ‘lOO,000 l0iQ611989 ‘lOO,000 1.00 Ca.. 600,000 (iii) Principal Activities DTI is principally engaged in fancy plywood and MDF lamination process, (iv) Directors and Substantial Shareholders Tbe Directors of DTI and their respective shareboldings are sel out below:

KuolenHui Chuall Cbai Cben 30,000 5.0 Mohammad bin Arnan

Notes: (1) Deemed interested by virtue ofiheir substantihl $/Jarelwlding in EFB and inETP
(2) Dtremed interested by II/nue of biB refatWnship with the .w.tbstantial sfulleJrolder ofDow.! Sdtl Bhd, .. subsum:tiol sMrehc1der atDTt

91 5. INFORMATION ON THE EFB GROUP (C”””d) The substantial shareholders of DTI and its shareholdings are set out below:
; i: ~,’, Dlnd–>• .1:; .
‘,,’ ,,” “”,(shares
F.FB 26$,000 44.61 ETP 250,800 41.80 DaudSdnBhd 30,000 5.00 Cbuan Chai Chell 30,000 5.00
(v) Employees As at 17 January 2005, DTI has a 10tal of 123 employees as tabled below: (vi) Range ofYears  eft  ories  No, Of , EmpWyfeS  In Servi(‘e  Managerial and PmfessIQ1lal  6  6-26  TeclInical and Supervisory  9  1-19  Clerical and reLated oc’ClJpatiolls (e,g, clerks, tYl’t!>t,  5  1-4  stenographers, personal secretaries, etc.)  General  5-10  Suh.wlary .nd_atoo Cn_re,
As at the date of this Prospectu~ DTI does not have any subsidiary or associated companies, THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK 1 92
S. INFORMATION ON THE EFB GROUP (ConI’d) 5.4 lndustl’)’ Overview 5.6.1 Overview OfTbe Reconstituted Wood_based Panel Btntrd I.dustry In Malaysia Background Information The growth in downstream processing acti…ities has contributed to the increase in the importance of intermediate SIlpporting industries such as the reconstituted woocJ..based panel board sector. RC<Xlnstituted wood-based panel board are products made from recycled wood fibres or particles that are bonded together with resin under high heat and pressure to form a flat dense sheet. The result is a strong wood panel. that does not bend or warp. The two most COllllUOn are medium density fibreboard (“,MDFj and particleboard. MDF is a smooth surfa;;:ed panel Il’l.ad¢ ‘IIoith fine wood fibres whilst particleboard is made using coarser sawdust.. The reconstituted wood-based panel board sector falls under the total umbrella of the wood­based industry. The reconstituted wood-based panel board industry plays an important supporting role in the growth and development of the wood-based industry in Malaysia, This is substantiated by the tollowing observations: Malaysia is a major exporter of reconstituted wood-based panel board products to the world mark¢t whereby .in :2003, the export value of MDF fibreboard alone reached RM978,6 nilllion, making Malaysia the world’s third largest exporter of MOE Reconstituted wood..oosed psnel board is regarded as 3 promoted activity, which is encouraged and supported by GQvernment incentives such as Pioneer Status. This is in line ‘With the Government’s efforts for a focused and selective approach in tbe development of the wood-based industry in ensuring that limited resourees are utilised in the manufacture of high value-added products, Reconstitutoo wood-bascd panel boards are regarded as value·addcd products, This­involves tile conversion or recycling of low-grade wood based materials for example residue .from wood mills, tree branches and chip waste to produce quality panel products. Providing variety in secondary products such as the different types ot reconstituted wood-based panel boards to increase the choice of working materials for end·prodru;t manufacturers. Undertaking manufacturing of semi-finished products such as fumilnre components to increase efficiency in rnass-pnxktction for endwproduct manufacturers as well as. enabling furniture manufacturers to focus on tbeir COte competendes, As the reconstituted wood-based panel board industry is largely derived from plantation timber and residues produced by wood mills to produce fibre, it will provIde a viable alternative in view of the growing shortage of tropical hardwood. 93 5. INFORMATION ON THE EFB GROUP (C”””d) Reconstituted wood-lY.iSed panel boards are also growing in usage and applicatloos. Some of the diverse applications ofreconstituted woo(f..based panel boards include the following: building materials such as Ooor ckcking. wall lining, roof decking, wall cladding. doors; profiling such as architraves, skirtings. cornices, windows frames, door frames; fumiture and furniture parts including of11ce and household ftuniture, tables, shelving; decorative products such as kitchen bench tops and cabinets: household products sucb as toys, baby cols, picture frames; paneling and partitioning; and flooring. (SQurce: Extraaio” olAsscssmem oft/w &colUtillltfd Wood-Based Pancel Board Industry, updated 27 NCJVcmber 20{)4, prepared by Vital Factor Consulting SdrI Bhdfor indusion in rhis prospectus.) Industry Structure ‘I’1re reconstituted wood-based panel board Industry is 1>1rUctured into the following suh­soctors:
MDF -Afedium Density Fibreboard HDF M High Density Fibreboard OSS -Oriented SlJ’and Board The reconstituted wood*based panel board industry comprises the following major product categories; MDF; HDF: Particle Boord: Wood Cement Board; and OSB. Reconstituted wood·based panel boards are products mainly made from wood reduced to particles, which rang.e from large flakes to fibres.. and bonded under heat and pressure with adhesives 10 produce flat, dense sheets. 94 S. INFORMATION ON THE EFB GROUP (Com’d) The reconstituted wood-based panel board is also sometimes referred to as composite board. Details ofthe major pnxluct categories of the reconstituted wood-based panel hoard industry are as follows: MDF and HDF are composite boards .or panels tllat are made of wood :fibres, llte$ composite boards can be routed, moulded, finished and laminated” making the boards the ideal raw material bases for mouldings and other types of internal joinery, MDP is mainly used in tbe furniture industry and are largeiy interior producls. whi~h are not suitable for outdoor lise, Some of the applications of MDF include kitchen bench lops. kitchen cabinets, shelves, flush doors, television cabinets, mouldings. cupboards. drawers. office furniture, game boards, picture frames and pedestals for tables amongst otbers. The thicker MDF is used fur mUl\\o’Ork applications including door frames, window frames. casings and turnings, amongst others. HDF is used for heavy-duty purposes and is widely used for flooring. Tbe manufacturing process of HOF involves significant pressure and temperature to compress the particles into a flat board which are higher in density compared to MDP. Particleboard is also referred to as clripboard. These boards are panels composed of wood particles in the form of chips or shavings. bonded together with resin and compressed into rigid sheets. Fine particles arc usually Jaid at the surfaces of the panels to fonn dense layers, the less dense core compris<:d ofcoarse particles. Some of the appliclltions of particleboard include furniture. kitchen cabinets., floor underlay, shelves. television c~ partitions and ceilings, Wood Cement Boards are panels manufactured from wood strands bonded with cement. These panels are largely used as building materials for a wide range of applications including exterior and interior wall partitioning. flooring llIid underlay. roofing, permanem shuttering for concrete fonning system:s and sound barriers. OSB are panels made with layers of precision~manufacturedwood strands, flakes or wafers sliced from small diameter, round wood logs that are aligned or oriented. All these are formed into panels and pressed with on exterior-type binder under heat and pressure. OSBs derive its strength from umnterrupled wood fibres. interwoven long strand or wafers. and the degree oforientation of surface layers strands. OSB is used for structural sheathing for walls and roof, flooring, packaging and advertising display. The panels are highly resilient to impact and are therefore suitable fur lining of buildings such as indoor sports halls. OSB is used to replace plywood In most applications. The Group is primarily a manufacturer of MDF and downstream wood~based products such as knocked~do”‘l1 wooden furniture. A” part of the Group’s product extension phms, the Group started the manufacturing of particleboard in 2003, (Source: Extractioll atAssessment ofthe Reconsurtrted Wood-Based Panel Board Industry, updated 27 November 2()()4, prepared by Vital Factor COJlsulting Sdn BM for inclusion in thisprospeaus.) 95
S. INFORMATION ON TilE EFB GROUP (Cont’lf) Demand and Supply Conditions (8) Supply Act;ording to the Department of Statistics, the prod:udion of MDF is categorised under the ‘Plywood, Hardboard and Particleboard MiUs’ llOCtoT. As there is no specific data available on the local production of MDP, data on plywood, bardboard and particleboard mills is used to provide an indication of perfurmnnce in the reronst:ituted wood–based panel board industry. Sales value of plywOod, bardboard and particleboard mills declined at an average annual rate of 0.3% from 1999 to 2003. However, in 2003, sales value increased by 4.6% to RM6.3 billion over the previous ye-ar. Between 1999 and 2003. sales value of particleboards grew at an average annual rate of 3.7%. However in 2003, sales value decreased by 6,9% compared 10 2002. In 2000, sales value of particleboard ~acb:ed RM785.1 million. Between 1999 and 2003, production quantity of particleboard grewai an average annual rate of 3.9%, However, in 2003, production quantity of particleboard decreased by 18,5% as compared to the previous year, In 2003, production quantity of particleboard reached 1.1 million cubic metres. (Source: F..xtraction atAssessmentofthe Re.-:onstituled Wood~Based Ponel Board ltUlustry, updoted 27 November 2004, prepared by Vital Faet()r C~g Sdlt 8Mfer inclusion in this prospectus.) (I)) Demand Demand for MDF and particleboards are dependent on the following markets: Local market demand; and Overseas in term…. of export market demand, However export market demand for MDP and particlehoard predominates, Following are some of the export market 1rends fQr MOP and particleboard: Between 1999 and 2003, export value of MDP grew at an average annual rate of 7.3%. ]n 2003, export value of MDF increased by 12.9% compare<! to tbe previous year, In 2003, export value of MOP reached RMm.6 million. Between 1999 and 2003, export quantity of MDP grew at an avemge annual rate of 8,1%. rn 2003, export quantity of MDP increased by 12.5% compared to 2002. In 2003. export quantity of MDF reached approximately 1.2 million cubic metres, Between 1999 and 2003, the export value of particleboard and similar board or wood or other ligneous materials. whether or not agglomerated with tesins or other organic binding substance&, declined at an average annual rate of 2.7%. However, in 2003 export value increased by 21.9% compared. to 2002. In 2003. export value of this ~’3tego.ry reacbed RM139.2 million. (Source: Extr4ctWn QfAssessment ofthe Recomtituted W()(){/·Based Panel &u1rd ln4ustry, updated 27 November 2004, prepared by Vital Factor Consulting Sdn Bhdfor inclusiOil in thisprospec:tw.) 96
S. INFORMATION ON THE EFB GROUP (Com’d)
Overn”, the life-qclc of the reconstituted wood~ panel board industry in Malaysia is in its growth phase. This is based on the following observations: (a) 1.0..1Production Sates value of plywOOd. .hardboard and particleboard miUs (including MDp) declined at an average an:nua.l rate of 0.3% from 1999 to 2003. However in 2003, sales value of pl)’Wood, hardOOard and particleboard mills (including MDp) increased by 4.6% compared to 2002. In 2003, sales value of plywood, bardboard and particleboard mills (including MDp) reached RM6.3 blUion. Between January and September of 2004. sales value of Plywood, Hardboard and Particleboard MiJJs (including MDF) increased by 26.6% to reach RM5.8 billion compared to the same nine-month period in 2003. Between 1999 and 2003, sales value of particleboard grow at an average annual mie of 3.7%. However in 2003, sales value of particleboard decreased by 6.9% compared to 2002, 10 2003, sales value of particleboard reached RM785.1 million. Between January and October of 2004, sales value of particleboard iocreased by 3.8% to RM684.8 million compared to the same ten-month period io 2003. Between 1999 and 2003, production quantity of particleboard grew at an average annual rate of 3.9%. HQWcver in 2003, production quantity of particleboard decreased by 18.5% oom:pared to 2002. In 2003, prodw..’tiQn quantity of particleboard reached Ll million cubic metres. Between lanuary and Ot::tober of 2004, produdion quuntity of particleboard decreased by approximatclj’ 10.0% to 941,000 ~bic metres compared to the same ten-month period in 2003.
Between 1999 and 2fX)3, export value of MDF grew at an average annual rate of 7.3%. In 2003, export value of MDF increased by 12,9% compared to the previous year. In 2003, export value ofMDF reached RM978.6 million. Between 1999 and 2003, export quantity of MDF grew at an average annual rate of 8.1%. In 2003, export quantity of MDF increased by 125% compared to 2002. In 2003, export quantity of MDF reached approximately 12 million .cubic metres. Between 1999 and 2003, the export value of panicleboard and similar board or wood or other ligneous materials, whether or 001 agglomerated \\oith resins or <>tiler organic binding substances, declined at an average annual tate of 2.6%. However. in 2003, the export value of this category increased by 22.7% compared to 2002.. In 2003, export value of products under this eategOIY reached RM139.2 million. 97 5. INFORMATION ON THE EFB GROUP (Cont’d) The growth phase of the life-cyc1e of the Reconstituted Wood-bascd Panel Board Indl.l8try will continue to be fuel1ed by the following: trends and factors: There are approximately 2,000 fumiiure manufacturers in Malaysia and it is this large number of furniture operators in the country that will continue to stimulate demand and growth for Reconstituted Wood-based Panel Board. Furniture is one of tbe major user~ industries for Rtx:oostituted Wood~basOO Panel Board. MDF, which is categorised uoder the Reoonstituted Wood-based Panel Board Industry. is. a relatively newly developed sector in the timber industry whereby 1110St of the mills in Malaysia was only established in the 1990s. This reaffirms an industry that is still in its growth and development phase. As the Reconstituted Wood Panel Boards serve many user-industry sectors w.iih a proliferation of usage and applications, the growth in tbe perfofIIllUlOO of the user industry sectors win continue to generate demand for Reconstituted Wood*based Panel Boord including MDF based products:and applications. (Source: Exfmction ofAssessmentofthe RUGttSlitutedWood-Based PaMl BoardIndustry, updated 27 NQvember 2fJ04, prepared by Vital Factor Consulting Sdn 8hd for inclusion in this prospectus.) 5.’-2 Future Growth for the Reconstituted Wood·based Panel Board Iltdustry The following are the areas of growth and opportunities for the reconstituted wood~based panel board industry. (3) Product [novation Product innovatiQ!ki. for rceQnstituted Wf)(I(1~based panel board would provide significant growth opportunities. Some o( the innovations (or MDF in particular include the tolJowing: Fire-retarCam properties; Anii~funga1 properties; Moisture-resistant properties; Sutf~ resistant properties; Scratch resistant surfaces; C’ortosion resistant surfaces; Heat resistant surfaces; and Stable low formaldehyde glue, Specialised MDF is created hy adding synthetic resitlS and other addilives to ordinary Moll to enhance its functional properties. Applications for moisture resistant MDE inctude shoo beel~soles or flooring baseboards and for other applications that are exposed to moisture. Hence, it is through the development of innovative products that wiU enable local manufacturers to gain new c-ompetitive advantages through product differentiation and an expanded product offering. (b) ExpatiiOD into OVCIUaS Markets Countries, other than the dominant e~rt markets, such as United Arab Emirates, Taiwan, Korea and Vietnam. present export opportunities for reconstitu:ted wood· based panel board such as MDF. In 2003, export value of MDF amounted to RM978.6 million and senne of the major export markets were China and Japan. Other roun1ries include United Arab Em.lrate.~ Taiwan, Korea, Vietnam and many others. As such. operators that are able to expand lnto overseas markets are in a stronger posltlon to diversitY business risks and reduce dependency on the local market. 98 S. INFORMATION ON THE EFB GROUP (Ctmt’d) (e) Use of AJterutive Materials There are other opportunities to use alternative materials as a source of supply of raw materials for the production of MDF. Some of the raw materials that are currently being considered include hemp, straw, palm tree waste, bamboo, rice husks and rocycled materials such as wooden pallets. The industry is still developing in terms of exploring the usc of raw materials that ate cost effective, plentiful in supply to produce MDF that meets the international standards in quality. (SOW’ce: ExtractionofAsses5menloftheReCQfl$JitutedWood·BasedPanel BoardIndustry, updnted 27 November 2fJ04, prepared by Vital Factor Consulting Sdn Bhd for inclllSkm in this prospectus. ) 5.0 Go-veJ”lWifnt Legislation, Po~ and ~tives (a) Government Laws and RegniatiOBS Application of a manufacturing li(:ence under the Industrial Coordination Ad, 1975 is mandatory for companies ‘With shareholders’ funds of RM2,5 million or above or engaging 75 or mo«: full·time employees, (b) LicensbogorWood·base<! Industry All wood~ operations are required to obtain a number oflicences, permits and approvals from the State as well as the Federal Government As a Federal matter, the MTffi is the authority responsible fur the issuance of licences on wood-based activities under the Wood-based Industries Enactment 1973 and Wood-based Industries Rules 1990. The registration of the following wood-based operations with the MTIB is malldatory under the Malaysia Timber Industry Board Enactment 1973 and Wood-based Industries RWe51990: export of timber or carryon business as an exporter; carry on business as a jetty operator; carry on the business of grading timber; and carry on business as a supplier or timber processor, fur the purpose of export trade.
Wood~based manufacturers are required to apply fur a licence to site, construct, erect. establish. operate or mailttllin a wood-based operation. Such operations include: Sawmills. plywood mills. veneer mills and blockboard millS; Woodworking mills. furniture mills and wood moulding mills; Fibreboard mills. chipboard mills and pulp mills; Mobile sawmills; and Charcoal kilns.
Ai the-state level, tbe main governing body is the forestry department of the respective states.. As such, MDF and particleboard mnnufaeturers located in Johor are governed by the Johm Wood~Based Industries Rules 1986 or the rulCSt whk:h were lawfully fixed at the latest date by the JoOOr Forestry Department For exports of wood products. the MTIB is the statutory body responsible for the registration of exports of wood prodllCtS. ” Chipboard is also S01’fl€ttmes referred to as partit:leboard For further deiails of the MTIB issued l~ kindly refer to Section 7.2 of this Prospectus. 99 5. INFORMATION ON THE EFB GROUP (Cont’d) (cj Alumlc EDergy Liccnsiag The lirensing of Atomic Energy is governed by the Atomic Energy Licensing Act 1984 (Act 304). Tile objective of the Act is to mainly provide for the regulation and control of atomic energy and fur the establishment of siandards on liability fur nuclear damage. For further details of the Atomic Energy Ucensing Board issued license&, kindly refer to Section 7.2 of this Prospectus. (d) Governmeat Incentives The major incentives for companies investing in the manufacturing sedor are the: Pioneer Stattls; Investment Tax Allowance; and Reinvestment Allowance.
Eligibility for either the Pioneer Status or Investment Tax Allowance will be determined acoording to the priorities termed as “protOOted activities’ or “promoted products”. In addition, the level of value-added, technology and industrialliriknges will also be taken into consideration. In line with the Government’s intention to promote the growth and development of the Wood-based Industry, the manufacture of the following wood and wood~based products are regarded as prolllOted activities eligible for Pioneer Status and [nvestment Tax Allowance: reconstituted wood–based panel boards or products; wooden wild or other specialised function doors <)[ wooden ooUd w.indows; muJti-ply parquet~ wooden furniture or parts: insulation fQf cryogenic vessels; and all wuodcn products except sawn timber, venee-llind plain plywood.
Eligible manufacturers prodtft,ing for the export market may also apply for Drawba~k of Sales Tax on Materials Used in Manufactnre. According to section 29 of the Sales Tax Act 1972, all duty-paid goods used as materials for tile manufacture of mher goods which are subsequently exported, are eligible for Dravroack of the Sales Tax in full. ~her incentives available for eligible manufacturers include: Training Incentives such as the Human Resource .Development Food, Incentives ror Research and Development; TariffRelated Incentives such as:
Double Deduction for Promotion of Exports; Exemption from Import Duly and Sales Tax on Machinery and Equipment; and Exemption from Import Duty and Sales Tax 00 Spares and CollSlJJftables,
THE REST OFTHIS PAGE ISIN’rnNTIONALLY LEFfBLANK 100 S. INFORMATION ON THE EFB GROUP (Ctmt’d) (e) Cess and Royalties Export levies on timber and timber products imposed by the Government are aimed at ensuring an adequate supply of raw materials for the wuod-based industry. As at November 2003. the cess :rates on the export of wood and wood products in Peninsular Malaysia are as foUoW\S:
n,a =not applicable
Some of the main envirolUOOlltal issues faced by companies involved in the manufacture of reoonstilUtcd wood-based panels include; Disposal of bulk waste comprising timber materials; Control ofsmoke emissions from the boiler; Wastewater from the boiler containlng wood-based sludge. The Department of Envimnment has specified that tbe ins1allation of boiler fm the beating of water or other liquid in premises must obtain prior written approval by the Director General of !be Department of Environment The prescribed permissible limits of concentration of air-impurities or smoke emission, resulting from buming \Yuod for the boiler. is regulated under the Environmental Quality Act 1974 and Environmental Quality (Oean Air) Regulations 1978. The disposal of any sludge from wastewater treatment system falls under the Environmental Quality (Scheduled Wastes) Regulations, 1989. (Source: Extraction of.4ssessmem ofthe ReooffSfituted Wood~Based Panel Board Industry, updaJed Z7 November 2004, prepared by Vital Factor (‘Onsulting &in BM far iJu:lusinn in this prospectus.) 5.6.4 Summary OfOulIook Awl Proopec” OfTlte Industry The outlook for the reconstituted wood–based panel. board industry is dependent on the following:
Sales value of pl}’WOOd, l1arrllxlard and particleboard mills (including MDF) decUned at an average annual nrte of 0.3% from 1999 to 2003. However in 2003. sales value of plywood, hardboard and particleboard mills (including MDp) increased by 4.6% compared to 2002. In 2003, sales value of plywood, hardboard and particleboard n:ti1Is (including MDF) reached RM6.3 billfon. Between January and September of 2004, sales value of Plywood, Hardboard and ParticJeboard Mills (including MDF) increased by 26.6% to reach RM5.8 billion compared to the same n.fne..month period in 2003. Between 1999 and 2Q03, sales value of particleboard grew at an average annual rate of 3.7%. However in 2003. sales value of particleboard decreased. by 6,9% compared to 2002. In 2003, sales value of particleboard reacllcd RM78S.t million. 101 5. INFORMATION ON THE EFB GROUP (Cont’d) Between January and October of 2004, sales value of particleboard increased by 3.8% to RM684.8 million ;compared 10 the same ten-month period in 2003. Between 1999 and 2003, production quantity of particleboard grew at an average annual rate (If 3.9%. However in 2003, production quantity of particleboard decreased by 18.5% compared to 2002. In 2003, production quantity of particleboard reached 1.1 million cubic metres. Between January and October of 2004, production quantity of particleboard decreased by approximately 10.0% to 941,000 cubic metres compared to the same ten…:nonth period in 2003, (h) Exports Between 1999 aod 2003, export value of MDF grew at an average littnUal rate of 7.3%, In 2003, export value of MDF increased by 12.9% compared to the prevkms year. In 2((13, export value of MDF :ceaclled R..\:1.978.6 millioll. Between 1999 and 2003, export quantity of MDF grew at an average annual rate of 8.1%. In 2003, export quantity of MDF increased by 12.5% compared to 2002. In 2003, export quantity of MDF reacbed appro:x.imaiely 1.2 million cubic metres. Between 1999 and 2003, the -export value of particleboard and similar board or wood or other ligneous. materials, whether or not agglomerated with resins or other organic binding substances. declined at an average annual rate of 2.6%. However. in 2003 the export value increased by 22,7% compared to 2002, In 2003, export value of products under this category reached RM139,2 million. (c) End-User Industry Sectors Theperfonnancesofsomeoftheend-userindwltties for MOFare as fo!l0W5: Between 1999 and 2003, lhe sales value of furniture and futures grew at an average annual rate of 7.4%. In 2003, sales value increased by 10.1% to approximately RM4.0 billion; Between 1999 and 2003, tbe construction industry grew at an average annual rate of 1,6%, In 2003, ihe construction industry recorded gro”‘ih of 2.1%; Between J999 and 2003, the >;a1C$ value of planing mills, window and door mills nnd joinery worts declined at an average annual rate of 0,4%. However, in 2003, the sales value increa$d by 3.8% to RMl.1 billion over the previous year. 5.63 [ndustry~sReliance On And Vulnerability To Imports The industry is reliant on two major types of raw materials: rubbern’OOd 10,&S urea resin The remaining raw materials are veneer logs and veneer, paper overlay, chipboard and emulsion waxlhardener. 102 S. INFORMATION ON THE EFB GROUP (Com’d) These two major raw materials are available locaUy. In Malaysia. the supply of rubbetwood togs derived from rubber plantations is slowly declining. The areas that ate planted with natural rubber declined at an average annual rate of 2,7% between 1999 and 2003 (Note t1zat 2003 are estimated figures), However areas that are replanted with natural rubber increased at au average annual rate of 1.0% between 1999 and 2003 (Note that 2003 are estimated figures). In 200.~. areas that are planted with natutal robber reached 1.3 milIioo hectares in Malaysia, after a decline of 2.4% over the previous year. A.. the production of MDF <:an use a variety of raw materials such as wood off~cuts.. sha\ings. sawdust in addition to \\’Ood fibres, manufacturers can essentially use any type of plantation logs as ta’iV materials. UF glue is used extensively in the manufacturing of MDF and particleboard for bonding of wood fibres. Malaysia is a local producer of urea resin with an approved capacity of around 600.000 tonnes per annum. (Source: ExtractionofAssessmemoftheReconstitutedWood-BasedPanelBoardIndustry, updated 27 Navembel’ 2004, prepared by Vital Factor COllsuhing Sdn Bhd for inclusion in this prospectus.) 5.7 Miijor Customers ThelIstofmajorcustomers oftheGroupbased ontheyearended31December2003areas foUoW’S: Il I 2 3 4 5 6 7 8 9 10 vftooter Name En”” Ben ThanD Material Company” Tonah Trading C;) Boo Bhd Faithful Tftldi, (Hong Kong) Limlte Del Mar Inremational~ Thppan Cosmo Inc. ~World Industrial LW Plaut Intemation:al Ltd’t Nitori Co 1Jd Roy’s International Co ltd” TOTAL
Vietnam Malaysia China Unitoo States l’pan Chm. Uoited Kingdom Japan China
MDF MDF MDP Coated MDF, Embossed MDF, Veneered MDF,
i MDP Knocked-down wooden fumit;m;
MDF Veneered MDF Knocked-down wooden
furniture MDP 3.1 3.0 2.1 2.7 2.6 2.5 2.2 2.2 2.0 35.3 4 10 10 11 ,
9 9 5 6 103 5. INFORMATION ON THE EFB GROUP (Cont’d) Not= ‘” ETP acted as a trading transit point for some ofThe EFB GrQup’s prodw::ts, ‘Where the prodocts are sent to Singapore before bein8 forwarded to its final destinatJ.’WL ETP is Mt part ofthe EFB Group, Rvwever, all tJ’tmS4.CtiOIiS with ETP has already DtiUt:d as of1 January 2{}()4 where EFB has since been shipping go-ods directly to the ex-customers 1)/ ETP either directly or via EFB’s agent distributors. The cessation oftransactions with ETP does not affect the Group’s sales to the said customers.. it Indirect customers through ageni$ Turnover ofEFB Group for the year ended 31 December 2003 amounted to RM250.7 million. The Group has established a wide base of customers comprising 357 in total, including local and overseas. For the year ended 31 December ZOO3, the top 10 customers of the EFB Group accounted for 35% of the Group’s turnover. The remainder 65% 1S spread:across approximately 347 customers, The Group’s lop customer for the year ended 31 December 2003 is El’P in Singapore. which represented 12.3% of the Group’s revenue, The next largest customer, Ben Thann Material Company in Vietnam and Tonah Trading Co Sdn Bhd tteoountoo for 3.1% and 3.()% respectively of the (‘trOUp’s total revenue for the same period. For tile ten (10) month period ended 31 October 2004. the-major customers of the Group ttre listed below:
1 Del Mar Intem.tional~ 2 Ben Thanh Material Companl 3 Tonah Trading Co &in Bbd 4 Dragon World Industrial r.oo:t’ 5 Plwllntemational I1d* 6 Roy’S International Co Ltd* 7 Bripane1 Industries Sdn Bbd Samoon Int.em3t:1on al8 Enterprise Co UdJ 9 Her-Em EIltexprise Co Ltd* United States Vietnam Malaysia China United Kingdom
China MalayfOia China China ‘V~red MDF, Cooted MOF. Embossed MDF MDP MDF, Chipboar-d MOP, Cbipboard Veneered MDF MDP MDF, Chipboard
MOP MDF, Chipboard 9.72 3.77 ZB2 2.69 2.06 1.87 1.75 1.70 1.62 12 5 11 10 9 7 4 7
NOte: # Indirect customers through agents The Group has established a wide base of customers comprising a total of 459 customers inctuding local and overseas. For the ten (to) month period ended 31 October 2004. tbe top 10 customers of the EFB Group accounted for approximately 29.6% of the Group’s turnQvcr. The remainder 70″4% is spread across approximately 449 customers. 104
S. INFORMATION ON THE EFB GROUP (Com’d) The Group’s top customer, Del Mar International in United States of America represented 9.72% of the Group’s revenue for the tcn (10) month period ended 31 October 2004. The next largest customer, Ben Thanh Material Company in Vietnam and Tonah Trading Co Sdn 8hd ofMalaysia accounted fur 3.77% and 2.82% respectively of the Group’s total revenue for the ten (10) month period ended 31 October 2004. The Group is .elatively dependent on its top 3 customers whereby the combined total of the top three cuSlo!DefS of the-Group accounted for ‘16.31% (If the total turnover of the Group for the ten (10) month period ended 31 October 2004. However tbe Oroup has enjo)’ed long~term relationships with these 3 customers and this serves as some form of mitigation: Del Mar Internalional has been dealing with the Group for 12 y~ Ben Thanh Material Company has been dealing with the Group for 5 years; Tonah Trading Co Sdn Bhd has been dealing with the Group for 11 years. On the whole, 9 outofits top 10 customers have been dealing with the Group ror 5 or more years. out of which 6 have been dealing with the Group for 9 or more years. 5.8 MtUor Suppliers The Group’s top tell (10) suppliers for the year ended 31 December 2003 which collectively accotmted for 40.9% of the Group’s total direct purchases / expenses are listed in the fOllowing table:
Note: Based on the financial year ended 31 December 2003’s total expenses tiult amounted to approximate{~’ RM174.6 millWn exchu1ing depreciation, aU ref1lwreration to directors and employees, bank charges and interest. 105 5. INFORMATION ON THE EFB GROUP (Cont’d) The Groop’s top ten (10) suppliers for the ten (10) month period ended 31 October 2004 which collectively .accounted for 46.9% of the Group’s total direct purchases! expenses are listed in the following table:
Dynea (Singapore) Pte Ltd UF glue 14.8 11I 2 enaga NIl.’lionaJ Hemad Electricity 7.0 15 3 iDynea Krabi Co., Ltd UFGlue 4.• 1 4 Peroiagaan ~rjaya Rubberwood Logs 3.’ 2 Ban Lin Trading Rubberwood Logs 3.5 35 3.1 16 ;Hatyai Panel Co” Ud Electricity Starship .Agencies Sdn Bbd Ocean Freight Charges 2.07 3 BMwil Agencies Sdn Bhd Orean Frei.ght Charges 2.8 48 RubbeIwood Logs 2.2i 9 UangYuenKan 3 1.7 10to ,MISe Haul”” Sm’…Sd” Bhd l Ocean Fleight Charges …..ITOTAL .. . Note: Based Q1I the ten (10) month period e114ed 31 October]()()4, fOtu; group PUtcMses!expenses turIO/DtI(‘J! tv approximately RM207.5 million excluding depreciation. ail renumeration to directors mui empfnyees, bank cJuuges and infIm!SL The-Group’s top supplier, Dynea (Sin8Itpore) Pte Ltd accounted for 14.8% of total direct purchases of the Group for lhe ten (10) munth period ended 31 October 2004, This is mainly fur the purchase of UF glue. Although the Group is. relatively dependent on its top supplier, dependency is mitigated by the following fadors: Dynea (Singapore) Pte Ud has been dealing with the Group for approximately 11 years; The Group ean rely on 3 other ti’F gllle suppliers in the event of any intemlptions from Dynea (Singapore) Pte Ud. These;; other suppliers include: Norsecbem Resins Sdn BM; Dovechem Chemical End. (Kuantali) SOO Bhd; aoo Dyn”, Krahl Co., Ud. Dynea (Singapore) Pte Ltd will outsource the supply of UF Glue from its other plants around the-region in the event that its plant in Singapore is not able to meet the demand from EFB Group as stated in the manufacture supply agreement between the parties. The second largest supplier is Tenaga Nasional Berttad which accounted fur 7.0% of the Group’ total direct purchases for the ten (10) month period ended 31 Octo”bc:r 2004. The third largest suppliet is Dynea Krabi (‘.0,. Ltd which accounted for 4_9% of the Group’s. total direct purchases. 106
S. INFORMATION ON THE EFB GROUP (Ctmt’d) The main raw materials for the manufactoring of MOF is robberwood. lIowever it IllLISt be noted that the production of MDF uses mainly branchC$ and smaller diameter rubberv.”OOd logs which are deemed unsuitable fOl tbe solid wood furniture industry. In the event of a shortage in th.e supply of mbberwood. tbe Group can use other alternative materials such as off..cuts and shavings in addition to other types of plantation wood for tbe production of MDF…..’urtlwrmore the Group is considering establishing chipping operations within ASEAN i.e. in one of the ASEAN countries that has ample supply ofrubbenvood. The Group may, in the future, seek to acquire forestry concessions t<> extract rubberwtlod and! or undertake reforestation alrer extra¢tion. This will help to somewhat reduce the dependency on the suppliers of ruhberwood. 5.8.1 FiIlaD.dnl Arrangeweats: With Swpp)ltrs Save as disclosed in Section 8.1, t.be management of the Group is uftbe opinion dw none of the shareholders and directors of the Group have any direct or indirect interests of dealing vltith the Group’s suppliers. All suppliers were selected based on merits in terms of cost competitiveness. assurance of quality and ability to deliver on time. Financial arrangements with suppliers of the Group are as follow: Overseas suppliers are based 011 letter of credit and tek-graph transfer upon delivery of goods; and IAcal suppliCl1S are based on normal trad.:ing terms of :;0 to 60 days credit upon delivery. 5.9 Future PIau, Strategies and Prospects of tbe CompaRY 5.9.1 Overview of Fu:tore Plans and. Strategies The future plans of the Group are focused in three key areas as depicted in the figure below:
107 5. INFORMATION ON THE EFB GROUP (Cont’d) (oj Expo_OfMo••Iil_gF_ Establisbmeu.t ofChipptng Opentions Part -of the-EFB Group’s future plans is to establish dripping operations; as part at the process to IUanuta.cture MOF aru,I particleboard. This will help to supplement the supply of raw materials for the Group’s manufacturing operations. The Group will undenake a feasibility study before embarking on the set~up of the chipping operations. Depending on the outrome of the feasibility study, the Group is expecting to embark on the chipping operations in 2006. Purchase of Melamine: Lamination Equipment Part of the Group’s expansion plan is to acquire additional melamine lamination lines for SFC. The EFa Group expectS to make-the purchase additional melamine lines by the end of 2005, (b) New Product Dt:velopmenl Aoul De$igu Higil MoistuN Resistant MDF The EFB Group intends to carry out research and development activities to develop high lDQisture resistant (lIMR) MDF. ‘I1lls will enable the Group to widen too applications of its MDF products to ioc1ud.e those that are exposed IQ rngber levels of moisture including external 000tS, bathrooms, kitchen and window ftatnes, The Group intends to launch HMR MOf b)’ end of 2005. New Furniture Design In line with the Group’s expansion into downstream activities, the Group plans to undertake research and development into new designs for its knocked40wn line of wooden furniture. Currently; the m’B Group manufactures the following range of knockoo.down wooden furniture targeting the do·it~yourse1frDIY”) market shelves; television cabinets; display cabinets; television racks; shoe racks; writing desk;
chest of dra\V’etS; and book cases. The expansion of new furniture design will take place by the end of 2006. MDF with El Gnu!<: The EFB Group intends to carry out R&D activities on manufacturing of MDP to continuaily improve on the El standard, It intends to launcb El Grade (jof MDF by the end of 2005. The development of MDF with El standard will inoorp01ate the Group’s in~house {onnulated binding agent with iow formaldehyde emission. Globally. MDF with El standard are in high demand in Japan and the European Union. The successful development of MDF with H1 standard will enable the EFB Group to further strengthen its exportS in these markets, The Ern Group intends to commercialise its pnxluction {)f MDF with El Grade by the end of2005, 108 S. INFORMATION ON THE EFB GROUP (Com’d) (c) Expans}OD Into Supporting Activities New Glue Rfsin Plaut Glue resin is OtiC of the main raw materials used for the manufacturing of MDF and particleboard. The purcllasc of glue fur the Group amounted to approximately RM30.7 miUlQn fur the year ended 31 Decetnbef 2003, whereas for the ten (10) month period ended 31 October 2004, pun::hase of glue amounted to RM42.6 million. With the increasing u:~age of tills raw material, the Group intends to establish a glue resin plant through a joint-venture arrangement with existing glue resin producef8 to ensure continuous supply tor its manufacturing operalions. It is expected tbat the new plant will be established in Thailand by 2007. (d) MilestoDes aDd Resoun:es The following table indicates the timing for the implementation of the future plans of the EFB Group:
5.9.2 Prospects of the EFB Groap According to management, the prospcc1$ of the BFB Group are favourable. This is substantiated by the fact that the Group is well positioned in the market. As the second largest mannfacturer of MDF (based on production in 2003) in Malaysia. it is poised to address the opportunities and growth in tbe global demand for IlfIDF and particleboard. Demand for MOF products is expected to increase, driven by fundamentals such as rising demand and tight supply. MDF is a relatively newly developed sector in tbe timber industry whereby most of the mills in Malaysia were only establ1shed in the 1990$, This reaffirms:an industry that is still in Its growth and development phase. In addition, the growth in the performance of the user industry sectors will continue to generate demand for reconstituted wood..fJased panel boards including MDF based products and applications. This factor augurs wcll with the stra1egy of the EFB Group’s future plans to further expand its operations to various new markets. In addition, the Group h3$ also expanded its production capacity through its new subsidiary in Thailand. SFC. which Viill enable the Group to address export market opportunities. 109

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