Report to Shareholders for the Period Ended 31 December 2003

Evergreen Forests Limited incurred a net loss after tax of $13.151 million for the six months ended December 2003 (December 2002 profit $4.270m). The loss incorporates the forest value write-down ($13.162m post tax) announced in December 2003, as forest are now accounted for at valuation and all forest value movements are recorded through the Statement of Financial Performance.

In addition, the previous accounting policy (historical cost) required the capitalisation of some interest and silviculture expenses that are now expensed under valuation accounting. Therefore the result cannot be directly compared to that the same period last year.

OPERATIONS
Market conditions were challenging during this period. From 2003 to December 2003, the NZ dollar appreciated 12% against the US dollar and shipping costs increased by over 50%. Log prices in US dollars increased, but as the following table shows, the NZ dollar returns are still below those prevailing 18 months

In response to these market conditions, the company reduced harvest from owned forests as foreshadowed in the June 2003 report to shareholders. The total harvest from the Evergreen estate for this period was 115,279m 3, some 28% lower than the previous corresponding period (160,270m 3). In addition to the lower volume, the log mix was quite different, with a higher proportion of sawlogs (+7%) and a lower proportion of pruned logs (-7%). Consequently, sales revenue from the Evergreen estate was lower at $11.358m (2002: $19.042m). Offsetting third party sales increased to $3.698m (2002: $0.831m) due to higher trading activity in our harvesting and marketing subsidiary, Forestry New Zealand.

FOREST VALUATION
It is disappointing to report a further reduction in the value of the companys forest estate to $118.7m (June 2003: $141.9m). This is in line with reductions reported by the major forestry companies. Recent market transactions and difficult trading continue to impact on forest values.

Jaakko Pöyry Consulting (JPC) were engaged by the Board to assess Evergreens forest value as at 31 December 2003. JPC applied an increased discount rate (from 9% to 10%) and slightly lower log price assumptions than those employed in previous valuations. The principal cause of the reduced forest value was the increase in the discount rate.

During the period, Evergreen sold a small forest in Clevedon, Auckland that had been identified as suitable for sale due to its semi-urban location and relatively high underlying land value. The company recorded a small profit on the sale of this asset. Sale proceeds will be applied to debt reduction.

OUTLOOK
Some tension has emerged in export markets as New Zealand producers reduce their harvest and lower export volumes, This has resulted in an improvement in US dollar log prices, but as previously shown, the continued escalation in shipping prices and the strength of the NZ dollar has overwhelmed the US dollar price increases resulting in much lower NZ dollar stumpage values.

Domestic markets remain mixed with good demand from structural mills for unpruned sawlogs. However, domestic pruned log prices have come under pressure as the local mills processing these logs have faced lower prices for their products.

Evergreen is planning to increase its production in targeted areas to take advantage of recent price improvements of export sawlog grades. Total harvest volume for the year should be similar to the prices last financial year.

NZ EXTERNAL REVIEW
As indicated by the Chairman at the 2003 AGM and again in the market announcement on 19 February, the Board considered the impact of recent asset valuations to be material for the Company and that it was proper to review how best the economic circumstances could be managed.

Hence, the Board commissioned an independent consultant to review and report on the companys strategy, operations and asset quality. This report has now been received and carefully considered by the Board. It confirms that given the maturity profile and location of our forests, deliberate action should be taken to manage the company through what may be an extended cycle low NZ dollar log prices in order to preserve shareholder value and to position the company for the future.

As a result, several important decisions have been taken. First Evergreen Forests will cease pursuing a growth strategy and for the foreseeable future will concentrate on its existing asset base.

Secondly, as an immediate step, we are aggressively reducing both administrative and operational costs. This is likely to entail changes to our management structure, office location and silvicultural policies.

Thirdly, in order to further strengthen our balance sheet and manage possible fluctuations in forest values, we will also consider, amongst other things, further asset sales with the proceeds being used to retire debt.

This will be a staged process, but one actively pursued in the months ahead.

Peter D. Wilson Chairman

Mark S. Bogle Chief Executive

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Peter Wilson
Chairman

Mark Bogle
Chief Executive