PanGlobal Berhad

On behalf of the Board of Directors, I am pleased to present the Annual Report and the financial report of the Company for the year ended December 31, 2006.

The Group registered a turnover of RM276.2 million, a 5% reduction compared to RM292 million the previous year. The loss before taxation was RM112.7 million of which RM78.5 million was mainly attributable to finance cost as a result of accrual of interest payable on loan stocks and term loan and RM19.5 million on impairment of Investment Property. However, upon completion of the Restructuring Scheme, this accrual of interest in respect of the loan stocks issued and outstanding will be waived.

A detailed report of the various divisions are as follows:-

PanGlobal Insurance Berhad (PGI)

- Turnover: Decreased 24.3% from RM130.7million to RM105.2 million
- Loss before taxation: Losses of RM5.4 million compared to RM27.4 million prior year.

Industry trends & development

The general insurance industry registered a significantly lower gross written premium (GWP) growth of 3.2% in 2006 compared with 7.8% 2005 year-on-year to reach RM11 billion. Similarly net premium grew at a much slower rate of 2.9% compared with 9.3% to reach RM7.7 billion. However motor insurance registered RM4.6 billion in GWP, a decrease of 0.5% in the same period compared with a growth of 11.9% in 2005. The net claims incurred (NCI) ratio for 2006 increased to 59.4% compared with 55.4% in 2005 while the combined ratio increased to 92% from 87.2%. On the whole gross direct premium increased by 2.7% to RM9.6 billion while total assets grew by 4.4% to reach RM18.8 billion. The market environment is not expected to improve significantly in financial year 2007 despite a forecast GDP growth of 5.8% and will continue to remain competitive and challenging due to possible interest rate hike, more stringent hire purchase financing and slow down in used cars market.

Performance

Financial year 2006 was a very challenging year characterised by continued slow down in sale of motor vehicles and increased competition from other players and consolidation through merger and acquisitions. Although market environment was ameliorated to a certain extent by an improved equities market in the second half of the year, PGI was adversely impacted. PGI recorded a significant drop in GWP of 19.5% to RM105.2 million from RM130.7 million in 2005. Claims still remained high with NCI at 70.5% although it had improved by 5.6% compared with the industry benchmark. Management expenses were also high at 37.8% compared with industry benchmark of 21.6%. Management expenses included significant write-down due to impairment of assets as mandated by Financial Reporting Standards. As a result of the substantial drop in GWP and high claims cost and management expenses, PGI continued to record an underwriting loss of RM18 million compared with a deficit of RM23 million in 2005. The net operating loss for 2006 was RM5.4 million compared with a loss of RM27.4 million prior year, an improvement due largely to decrease in unearned premium reserve of RM15.9 million and investment and other income totaling RM12.4 million.

Prospects

PGI will continue to pursue its policy of consolidation and stabilization through a number of initiatives to return the company to profitability in financial year 2007. These initiatives and measures as set out in the business plan are focused on identified key areas including effective claims management, cost containment and improvement, quality of underwriting, refinement of portfolio mix and development of agency and direct business. For the first quarter of 2007, PGI recorded a net profit before tax of RM3.9 million. This would augur well in the proposed disposal of PGI.

NATURAL RESOURCES (TIMBER)

Limbang Trading (Limbang) Sdn Bhd (LTL)

- Turnover : Reduced 15.5% from RM86.5 million to RM74.8 million
- Profit before taxation : Increased 17.0% from RM5.6 million to RM6.7 million

Industry trends & development

Although the pace of development in China and India has slowed down, these countries continue to play an important role in terms of timber demand, both as importer and processor of logs. The price of timber soared towards the end of the year to US$295 per cubic metre for Meranti from US$240 at the start of the year. The demand for timber in South East Asia continues to remain high and firm. Log prices in Japan reached a twelve year high during the year.