Chairlady's Statement in the 2008/09 Annual Report

Dear Shareholders,

On behalf of ND Paper, I present the annual results for the year. On behalf of the Board, I would also like to express my heartfelt gratitude to all shareholders and friends from various circles for their care extended to the Group.

The onset of the global financial tsunami in the second half of 2008 in tandem with contracted export demand had plunged China's paper industry into a trough. Nevertheless, opportunities are once again surfacing in the industry's operating environment, as the economy has delivered more positive feedbacks in the first half of 2009, thanks to the global recovery and state-run stimulus package to promote domestic demand in China. Being the largest containerboard manufacturer in Asia, the Group leveraged on its robust strength and well-defined strategies during economic upturns to keep its core business on course, with total design production capacity reaching 8.82 million tpa. Its geographical reach at home was further expanded following the commencement of production of the Tianjin base which, together with the Dongguan base, Taicang base and Chongqing base, formed the four focal points of our strategic geographical layout. The remarkable improvement in the Group's many business indicators as compared to the second half of 2008 underscored the Group's strength in making the best out of market resilience and its industry-leading competence during times of adversity.

Despite numerous industry setbacks from the macro environment, the Group weathered the storm by maintaining disciplined development, leveraging on its advantages from a diversified product mix and adjusting the proportion of sales in relation to domestic demand to over 80%. As the economy gradually picks up, the demand for paper-based packaging in various industry sectors grew earnest, offering ample room for the Company to enjoy a quantum leap. While the Group's paper machines have maintained their high utilization rates, six new paper machines (PM18 to PM23) in Dongguan, Taicang and Chongqing commenced production as scheduled in the middle of 2008 and went through their optimization smoothly in the Year. Tianjin base, being the fourth base of the Group, also commenced production as scheduled in September 2009 and brought to the Group an additional design production capacity of 800,000 tpa. Such success has much to do with ND Paper's proactive and effective countermeasures.

To address the extremely volatile economic environment the Group adopted a series of measures in the Year, with improvement in internal management being the key to the overall solutions. The set up of a Group General Management Office dedicated to standardizing and regulating production workflows of all bases improved the general efficiency and facilitated business development. On top of our effort to strengthen the internal system, the Group seized the initiative to consolidate its operations and financial capabilities. Such strategic measures include adjusting operating strategy, tightening cost control, flexibly rescheduling the production commencement of several projects in 2009, improving its financial structure to maintain adequate cash flow, consistently emphasising environmental protection and further standardizing enterprise operations using international management disciplines. These forward-looking initiatives consolidated our ongoing policies and provided effective new protection against adverse market conditions.

The Group's sales amounted to approximately RMB13.1 billion for the Year, representing a decrease of approximately 7% compared with last year. Gross profit amounted to approximately RMB2.35 billion, representing a drop of approximately 18% compared with last year. Net profit attributable to shareholders of the Group was approximately RMB1.66 billion, and earnings per share were approximately RMB0.38.

In order to express our gratitude to shareholders who have been standing by ND Paper amidst the bleak economic environment, the Board proposes the payment of a final dividend of RMB3.5 cents per share, accounting for approximately 9% of the attributable profit.

Enhanced Corporate Disciplines by Adopting International Internal Management Systems

As the number of bases increased, ND Paper actively reinforced its internal management during the Year by establishing the Group General Management Office, and expanding the application of Enterprise Resource Planning (ERP) systems aiming at reducing uncertainties in management functions by improving all the standards in each department with respect to production, recycling, sales, materials management, logistics as well as receivables and payables, maximizing control from internal to external operations and enhancing risk management. Meanwhile, the Group facilitated communications among its bases and created inter-departmental synergies by unifying standards and convening regular meetings among bases so as to exploit edges and increase efficiencies of each base. Such move had mitigated inherent risks in each management function and boosted effectiveness of the Group as a whole.

In 2009, the major subsidiaries of the Group - Dongguan Nine Dragons Paper Industries Co., Ltd., Dongguan Sea Dragon Paper Industries Co., Ltd and Nine Dragons Paper Industries (Taicang) Co., Ltd. were recognised as High-Tech Enterprises by the state, enabling these subsidiaries to enjoy preferential tax rate for High-Tech Enterprises in future. Meanwhile, the Group sought to retain managerial talents with international visions from diversified fields, so as to enhance its corporate disciplines under international management systems. With a diversified product portfolio, an increase in the number of bases, a stronger client network and sufficient training opportunities, each staff of the Group is given more avenues to sustainable individual development and promotion.

Deployed Effective Inventory Management Strategies

Amidst erratic economic volatilities, the Company had successfully reduced the turnover days of raw materials through the synergy and coordination among its procurement function, sales function and internal production lines, with a view to increasing production efficiency by keeping a sufficient quantity of raw materials for production whilst cutting redundant inventories. Turnover days of finished products were kept within around 15 days to render the Company more flexibility to adjust its production plan for customers' needs. Meanwhile, to balance the international price movements of recovered paper, the Group is vigorously increasing its procurement of domestic recovered paper. Quality domestic recovered paper now represents about 20% of total procurement. Such proportion will be adjusted according to the price trends of quality recovered paper in the domestic and overseas markets.

Attained Solid Financial Position

To withstand credit risks inherent in the global economic downturn, the Group has ensured healthy cash flows by putting rigorous control on receivables collection and improving the applications of its working capital whilst continually improving its financial structure. With a sound financial position, the Group managed to reduce its interest rate going forward by repurchasing senior notes for three times. In December 2008 it also made two voluntary prepayments on its syndicated loans for a total amount of approximately HK$1.5 billion. Under the taxation policies for High-Tech Enterprises, the Company is poised to enjoy preferential tax treatment with a lower tax expense in the forthcoming financial year. On the back of the above favorable fiscal arrangement, the Group will be in a more flexible position when utilizing its financial resources.

Continued Emphasis on Environmental Protection

As the international communities become more demanding in environmental protection, energy saving and discharge reduction, the government has exerted more and more rigid regulatory enforcements. Compliance with environmental protection standards had already directly affected the continuity of operations and business performance of an enterprise. Being highly conscious of its social responsibilities, ND Paper has always adhered to its philosophy of "No environment, no paper", and has always performed better than the state requirements. Hence, not only has it never been penalized for non-compliance in environmental management, in fact it has received numerous awards for many times, and won the recognition and endorsement from various governments and community groups. The Dongguan base has successfully passed the energy saving assessment by the Economic and Trade Commission of Guangdong Province and attained the energy saving targets. The Taicang base has also passed the annual inspection by the State Ministry of Environmental Protection and has been granted an award under the environmental project fund of the Jiangsu provincial government. Furthermore, the Group's bases have been granted the honors of Green/Environmental Creditable Enterprise by the Guangdong Environmental Protection Bureau and Taicang Environmental Protection Bureau respectively, and continued to obtain ISO 14001 certification. It remains to be the belief of the Group that an enterprise can only survive and evolve by persisting in sustainable developments and reciprocating to society through ceaseless improvement. Therefore, discharge control and activities of social responsibilities have always been top priorities of the Group.

Capitalized on Industry Consolidation

Beset by the financial turmoil and subject to the government's tightened regulatory enforcement over environmental protection, various small and medium-sized paper makers faced tremendous business pressure in the Year and found their operating environments becoming extremely difficult. Hence, they need to suspend or close down their business thus accelerated industry consolidation. With ND Paper's most advanced production equipment and diversified product mix in ND Paper, and taking advantage of the surging demand for domestic paper-based packaging paperboard and the trend of industry consolidation, not only can the Group offer more paper product choices than its peers, it can also capitalize on its solid strength and flexible strategies to offer more paper alternatives than its peers but also excel across the industry in the course of consolidation, thus further reinforce its leadership position.

Outlook

Over the past year, ND Paper has gained precious experience in addressing and development under a less-thanfavorable international climate. Looking forward, particularly the second half of 2009, the initial signs of global economic recovery as well as government policy changes and stimulus are all expected to bring steady growth to domestic demand. Boasting the most advanced production equipment, a diversified product portfolio, high caliber management and sound development strategies, the Group is set to capture market opportunities to position itself for a better development in future. To this end, the Group has formulated the following strategies:

Adopted a Flexible Approach to Adjust Production Expansion Plans

While working to confront the economic turbulence worldwide, the Group's new base in Tianjin had duly commenced operation as planned in September 2009 to fill the market space in northern and north-eastern China which is experiencing supply shortage. The economic scenario was far from clear last year but taking the gradual market recovery into perspective, the Group has rescheduled the production commencement dates of PM27 to PM30 (currently under construction) to before the end of December 2010 so as to grasp market opportunities amidst economic recovery ahead of its peers, with a view to expanding its market coverage and extending ND Paper's unrivaled presence in the paper making industry.

Stepped up Product Diversification to Boost Earnings

ND Paper always excels in new product marketing. Its self-developed high quality products for domestic and overseas markets have gained market recognition, which in turn strengthen ND Paper's industry-leading position and make room for more sales opportunities. The Group also adjusts its product mix in response to the market demand, boosting sales value and optimizing its product structure by delivering more diversified and comprehensive products than its peers.

The Group plans to upgrade the existing PM3 in Dongguan base and PM20 in Taicang base to manufacture white top linerboard and coated white top linerboard with expanded capacities. The upgrading is expected to complete by August 2010. PM27 in Dongguan base, which was originally scheduled to commence production by the end of 2010 for the production of linerboard will be modified for the production of coated duplex board, food grade white board and de-inked recycled duplex board with white back. The design capacity will also be increased to 600,000 tpa. The modification will further enhance our product mix, increase our market share and make greater room for profit.

Acknowledgement

As one of the leading international containerboard companies, ND Paper has laid a solid foundation for over a decade and proved its strength in seizing ongoing opportunities. Going forward, we are confident in making achievements just like what we have achieved in the past. In face of such financial upheaval rare in a century, with the unwavering confidence of all our staff and management, we flexibly adjusted our pace of endeavors and business strategies at the worst times, and managed to strive a stable balance between current operations and future advancement. We have preserved our strong fundamentals so as to allow us to be ahead of our competitors in capturing any opportunities. We have established a solid foothold to take advantage of the forthcoming economic recovery and maintain our leading market position. Given encouraging signs in the global economy and the recovery of all sectors in 2009, the Group will make use of its strong foundation comprising the four major bases as a springboard to advance its business strategy for product diversification, higher quality and ever improving customer service standards, as well as a management philosophy emphasizing environmental protection and flexibility in the optimal deployment of various resources to make room for future growth. It is under such beliefs can ND Paper move forward to exploit its edges as an industry leader, maintaining healthy operations and orderly development to capture more opportunities emerging from the rebound. On behalf of the Board, I would like to take this opportunity to extend my heartfelt gratitude to the management, all our staff, governments at all levels, investors, banks and our business partners who have been supporting us all the time! Our future path of development may remain full of challenges ahead, but armed with the shared confidence and courage throughout the Group, we aim at maximizing our shareholder value, furthering our commitment on social responsibilities whilst working conscientiously to reap benefits from our strategic geographical layout of four bases to capture the market opportunities in China that come ahead!

Cheung Yan
Chairlady

Hong Kong, 14 September 2009