Cheng Loong Corp.

During the first quarter of 2006, the world’s main economies were in a stable and expanding situation. However, leading into the second quarter of 2006, the international economic growth slowed down and led to a weaker expansion of global economy due to rising energy costs and rising interest rates in key countries. Under the effects of a sluggish international economy and unstable political environment, the domestic economy became stagnant and remained weak.

In regards to the Taiwan paper industry, the participants’ gross profit margins were severely squeezed due to the sharp rise in energy and raw material costs. Under these severe operating conditions and increasingly intense international competition, domestic manufacturers started to increase containerboard prices to adjust to these market factors starting from the first half of 2006. Organizations in the industry have strived to achieve a balance between product prices versus costs in order to earn reasonable profit. Throughout 2006, CLC (Cheng Loong Corporation) tackled these competitive market conditions effectively and implemented a flexible global logistics management by receiving orders in Taiwan but manufacturing goods in Taiwan or overseas. Even in such severe business conditions, our turnover increased slightly compared with 2005.

In 2006, our net sales reached NT$ 21.59 billion, up 4.6%, and exceeding the full year target by 2.8%. Net income for 2006 was NT$ 771.43 million, an increase of 92.9% over the same period of the previous year.

	Volume	2006/2005 Growth rate	Performance/ Target
Production
Paper & Paperboard	1,267,693(tonnes)	1.6%	95.7%
Converting Products	468,880(000 m2)	-3.7%	97.1%
Sales
Paper & Paperboard	924,740(tonnes)	3.3%	95.9%
Converting Products	514,600(000 m2)	1.1%	100.5%

During 2006, we continued to expand the containerboard and converting business, increasing production and sales in China and Southeast Asia. This led to an achievement of significant growth in our overseas assets, revenues and profits. We persisted with our efforts to accomplish B2B E-Commerce platform, enhance our ERP system, and implement BI (Business Intelligence) management tools in order to accelerate and enhance our policy decision making. We are also devoted to research and innovation, and obtained several new patents including RFID electronic tagged smart box. Moreover, we won nationwide awards including “The Enterprises Environmental Protection Award”, “The Energy Savings Award”, “Outstanding Industrial Waste Cleaning and Resource Recycling and Reuse Award” and “The Occupational Safety and Health Award”. Furthermore, we kept TPM (Total Production Management) activities valid for better production performance. We also implemented KM (Knowledge Management) systems, and were awarded KM benchmark model by the Ministry of Economic Affairs. In addition to maintaining all management system certifications, all of our factories successfully achieved the ISO 14064. All these achievements show our ambition for excellence and competitiveness improvement.

Outlook for 2007, it is expected that global economic momentum might decrease in 2007 and affect the domestic economic performance according to several economic research institutes. In addition, business migration and globalization competition also threaten the domestic industry. To face the rapidly changing environment in 2007, we crafted the management policies as follows:

In addition to implement these policies, we will continue to expand our overseas business as well as improve performance management, fully utilize the benefits of ERP systems, BI and E-Commerce, strengthen operation management, and cooperate with our overseas subsidiaries to create an outstanding performance.

Finally, we would like to express our sincere appreciation to our shareholders and employees for your continued support and dedication to CLC. Thank you and all the best!