Chairman's Statement

Extracted from Annual Report 2006

On behalf of the Board of Directors of Classic Scenic Berhad ("CSCENIC"), I am pleased to present to you our Annual Report and the Audited Financial Statements of CSCENIC for the financial year ended 31st December 2006

A Challenging Year

Challenging! That's the best way of describing 2006! Two major occurrences tested our resolve. Firstly, there was an average increase of 15-20% in timber prices resulting in higher cost of production, and secondly, the depegging and subsequent appreciation of the Malaysian Ringgit (MYR) against the US Dollar of about 5% directly impacted on our revenue. On top of that, the high oil prices for most of 2006 also dampened buying sentiments by our customers, most of whom opted to carry lower stocks cover.

Meeting The Challenges And Winning

Rising to the occasion! That's the best phrase to describe our response! The escalating production costs were met with a focused drive to increase productivity, and rationalise costs. Continuous improvement programmes were implemented in not only product innovation, but also in routine standard operational procedures, and delivery systems.

Thanks to the excellent business partnership we enjoy with our customers, we managed to amicably pass on some of the increase in production costs, and this higher pricing led to our annual turnover increasing by 1.5%, to RM59.2million. Overall, the challenges we faced and met head-on, have made us stronger than ever! This is evident by the fact that despite the significant challenges, we still managed to achieve profit after tax of RM11.2 million for the financial year ended 31 December 2006.

Equally significant, the challenging year which we confronted, and with a positive outcome, was not similarly met by many others in the industry. There was a certain degree of consolidation whereby some of the marginal players left the industry, and this resulted in CSCENIC increasing its export market share from 43% in 2005, to 50% in 2006.

From Second To Main Board Of Bursa Securities

On the 29th May 2006, CSCENIC's paid-up capital was increased from 100,239,200 Ordinary Shares of RM0.50 each to 120,287,040 Ordinary Shares pursuant to the proposed bonus issue of 20,047,840 Ordinary Shares on the basis of 1 New Share for every 5 existing shares held at entitlement date. Subsequent to the Bonus Issue, CSCENIC's entire enlarged issued and paid-up capital was transferred from the Second Board to the Main Board of Bursa Securities.

The transfer of issued and paid up capital of 120,287,040 Ordinary Shares of RM0.50 each to the Main Board of Bursa Securities was completed on 2 June 2006 and shares were listed on 6 June 2006.

Acquisition and Expansion

Always on the lookout for opportunities amid challenges, on 30 August 2006 CSCENIC acquired Finesse Moulding (M) Sdn. Bhd. to streamline its business operations and to expand and strengthen its position in the industry. On the home front, we acquired another piece of land located nearby our existing facility to cater to expanding our capacity and work has commenced in the fourth quarter of 2006 on construction of the new storage facility. Barring any unforeseen circumstances, this additional factory should be fully commissioned by the third quarter of 2007.

Financial Performance Review

Despite the challenges of 2006 in respect of higher timber prices, and an average 5% appreciation of the MYR against the US Dollar, we are indeed glad to have achieved profit after tax of RM11.2million based on the revenue of RM59.2million recorded for financial year ended 31 December 2006 with a still satisfactory 19% profit margin.

Our earnings per share(EPS) based on the enlarged capital base after bonus issue in 2006, has reduced from 12.5 sen to 9.3 sen.

Dividends

Subject to approval of shareholders at the forthcoming Fourth Annual General Meeting, the Board of CSCENIC is pleased to recommend a first and final tax-exempt dividend of 9% in respect of the financial year ended 31 December 2006.

Outlook and Prospects

As the USA remains our main market, on a macro level, two recent developments there augur well for the Group. The easing world oil prices from a high of USD78 a barrel to a lower price is expected to translate into a renewed consumer spending scenario. Meanwhile, the US Federal Policy which left interest rate unchanged at 5.25%, is a strong indication that inflation is modestly slowing even as the US economy gained momentum. This positive momentum can be seen from the vigorous replenishment phase of many of our customers who practiced a low stock level policy in 2006, and consequently the start of 2007 saw a significant upswing in orders which we are happily working hard to fulfill!

The thrust for 2007 would surely remain on creativity and renovation, so as to not only keeps abreast of the latest picture frame moulding market developments, but more importantly, to keep us ahead of the competition with new designs to meet discerning customer needs. On the shop floor, we will review the production processes to iron out existing kinks, and also stress upon better use of timber to further rationalise production costs.

A Big Thank You

For an eventful 2006, we wish to take this opportunity to wish all those who have traveled the challenging road with us, a very big thank you. As sure as a win-win situation is the crux of a sustainable business environment, we will certainly continue to strive to enhance CSCENIC's profile, net worth and value, for the benefit of all.

We look forward to the challenges of 2007, and your continued and valued support to come out from these challenges stronger than ever.

LIM CHEE KEONG
Executive Chairman
Kuala Lumpur
14 May 2007