OVERALL ECONOMIC AND INDUSTRY OVERVIEW IN 2007

2007 was certainly a year of continued revitalization of the Malaysian Economy as it regained its confidence in the light of the Ninth Malaysia Plan introduced in the preceding year. Though the inflation rate was at a rising trend, the GDP growth remained strong, rising from 5.5 % in the first quarter of the year to 7.3 % recorded in the fourth quarter of 2007.

On the global front, external factors continued to raise concerns among investors, owing to the uncertainty of the US economy especially due to the sub-prime finance, coupled with the weakening of US Dollar as compared to other currencies.

Traditionally, Malaysia's growth has been export dependent. However, 2007 was a year where domestic demand was identified as a pillar of growth and had steadily contributed to the country's economy. Though the external environment remained volatile coupled with a slowdown in global growth, Malaysia's export sector had been resilient and was only mildly affected.

The Malaysian furniture industry continued to perform well despite stiffer competition from the Asian region, especially from Vietnam. It recorded a growth rate of 3.4 % in exports from RM7.5 billion in 2006 to RM7.7 billion in 2007. Malaysian furniture is now being exported to more than 160 countries worldwide. With aspirations to carve a path into the more up-market segment, industry players are encouraged to focus on product differentiation, branding and market expansion and diversification. Design innovation and industry modernizations are emphasized to promote Malaysian furniture as a globally recognized source of high quality furniture.

Given the strong domestic and sustainable overseas demand, we are grateful to have weathered uncertainties in the global economy and continued on a steady growth path in 2007.

FINANCIAL OVERVIEW

EURO achieved a record financial result in 2007, focusing on its core business of manufacturing and trading in office furniture. EURO registered a profit after tax of RM9.1 million against RM5.6 million in 2006. Its revenue increased from RM94.5 million in 2006 to RM120.2 million in 2007. Profit before tax was RM10.8 million, a leap of more than 50% from RM6.9 million in the previous year. With the better result, earnings per share improved significantly to 11.2 sen per share as compared to 6.9 sen in 2006. The net tangible asset per share was 84.9 sen as at 31 December 2007 as compared to 75.7 sen in 2006.

The improved revenue and the profit were contributed by sales expansion in both the export and local markets. The bulk of our activities were project based, constituting in excess of 87% of the revenue in 2007. The ratio for export sales against local sales was at 63:37.

NOTABLE PROJECTS SECURED AND COMPLETED IN 2007

F2007 was a blooming year for EURO and EURO has proven its capability to compete in the international arena. Some of the notable projects completed in the year were the supply of office furniture to Tata Consultancy Services and Sap Labs India Pte Ltd. in India; Conoco Philips in Indonesia, Bank of Indonesia, Cygal II Telekom Malaysia Berhad, Bank Pembangunan Malaysia and also CIMB Group, Malaysia.

KEY EVENTS IN 2007

From the 6th to 10th March 2007, the EURO Group participated in the 2007 Malaysian International Furniture Fair ("MIFF") at Putra World Trade Centre, Kuala Lumpur that attracted over 400 exhibitors from 17 countries. During this exhibition, EURO launched a new range of office chairs i.e. Active, a multipurpose chair, "Caddy Flip" and a new full range of workstation, "Explore".

On 21st to 23rd June 2007, the EURO Group participated in Interiors Malaysia 2007, a trendsetting interior lifestyle showcase as a result of the joint efforts of Malaysia Society of Interior Designers ("MSID") and Institute Pereka Dalaman Malaysia ("IPDM") at the Matrade Building, Jalan Duta. This was a great exhibition to showcase Malaysian manufactured interior products to designers, architects and project managers from both local and the Asia Pacific region.

On 18th September 2007, a subsidiary company, Euro Space Industries (M) Sdn. Bhd, signed a Distribution Agreement with Rosemount Office Systems, LLC for a period of five years amounting to approximately RM43 million, as part of our plans to venture into the North American market. Rosemount, with a total network of 700 distributors will market the "EURO" range of system furniture and components in North America. This collaboration is a smart partnership that will further enhance cross-pollination of skills and co-marketing alliances to best promote the EURO brand.

Not forgetting our corporate social responsibility ("CSR"), on 15th December 2007, the EURO Group volunteered to take 92 children from three orphanage homes for a day at a movie in a local cinema. More than sixty EURO employees joined the children to watch the movie and the aftermath lunch and party. The Group also bought party goodies as well as stationery for the children besides making a donation of RM5,000 to each of the homes.

Inter staff relations are also our emphasis in the working environment. To this end, the Company held various functions, including the Staff Annual Dinner, Christmas Party, etc to enable the staff to mingle and foster closer relationships.

DIVIDENDS

Subject to approval and shareholders at the forthcoming Fourth Annual General Meeting, the Board of Directors is pleased to recommend a final tax exempt dividend of 2.8 sen per ordinary share of RM0.50 each for the financial year ended 31 December 2007.

OUTLOOK AND PROSPECTS

The regional financial markets have started to slow down in the fourth quarter of 2007 as a result of the sub-prime concerns and economy slowdown in the United States. The growth in the global economy is expected to be slower with the growing uncertainty in the financial markets and the inflationary environment driven by the volatility of crude oil and other commodity prices.

Whilst the high crude oil prices and uncertainty in the global financial markets outlook may pose a damper to the Malaysian growth outlook, the resilience of the economy depends heavily on the ability to withstand them. The Government believes that the strong fundamentals in the Malaysia economy will have a mitigating role in reducing the impact. The 2008 Malaysian economic environment will be influenced by positive factors such as low and stable interest rates, a strong Balance of Payment and improved investors' confidence. Private sector expenditure is expected to be the main catalyst in 2008 and private investment is poised to recover with the Government's efforts to create more opportunities and to attract foreign direct investments into various economic regions, such as the Iskandar Malaysia, the Northern Corridor Economic Region ("NCER") and the Eastern Economic Region.

Rising material costs in line with higher global commodity prices do have a direct impact to the Group. Aluminum, steel and plastic are some of the key materials used in our production. Besides, the continued appreciation of Ringgit Malaysia against USD will also impact the Group's margin in view that in excess of 60% of our revenue is derived from export sales.

In view of the challenging environment ahead, the Group will take appropriate measures to mitigate the risk factors concerned. The Group will increase warehousing for stocking of raw materials especially during the rising trend of material costs, improving production efficiency and also effecting production at an optimum level.

The Group is also committed to product research and development. These are our efforts at exploring and introducing new products with new features, incorporating new materials in existing products to reduce costs and also to provide more varieties to customers so that the Group shall remain competitive in the market. In 2008, the Group will embark on the production of storage accessories - a new product line for EURO to expand the revenue stream of the Group. This new product line also aims to address the changing and increasing trend of utilization of storages in the modern office place.

In terms of production, we will continue to review and recommend process improvements to optimize operation efficiency, with stringent controls on material usage, wastages and rejects. At the same time, we shall closely scrutinize our selling price so that the business remains viable and competitive in the prevailing market conditions.

Rest assured that we will render our efforts wholeheartedly to improve shareholders' value as we endeavor to bring the Group to a new level of achievement in 2008.

APPRECIATION

On behalf of the Board of Directors and Management of EURO Holdings Berhad, I would like to thank our dedicated and meticulous staff, valued customers, business associates, shareholders, government authorities, bankers and other stakeholders for their unwavering support to the Group and the Company. We would certainly treasure your continuing support and assistance in many years to come in achieving even greater success for EURO.

DATO' MOHD HANIFF BIN ABDUL AZIZ
Chairman