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Dear Shareholders,

On behalf of the Board of Directors (the Board), I am pleased to present to you the 2011 Annual Report and the audited financial statements of Malaysia Steel Works (KL) Berhad (Masteel or the Group) for the financial year ended 31 December 2011 (FY2011).

FY2011 was a turbulent year for the global steel sector, which experienced highs and lows throughout the year under review.

On one hand, global crude steel production grew by 6.8% or approximately 1,527 megatonnes (Mt), according to data from the World Steel Association, driven by improved activity in the automotive, appliance and other industrial sectors, which resulted in a rise in both shipments and average selling price overall.

Yet, on the other hand, volatility remained in the market and demand was impacted, especially in the last quarter, by negative factors like the Eurozone debt crisis, a slowdown in China’s property market and de-stocking initiatives undertaken by many on fears of increased uncertainty in the global economy.

FY2011 Financial Highlights

Despite the challenges in the steel industry, for the first time in our history, Masteel was able to post commendable FY2011 revenue growth of 24.7% to RM1.3 billion from RM1.0 billion a year ago, due mainly to overall higher sales volume of our steel bars and billets, and better export numbers.

In fact, export sales posted the highest growth rate, with contributions to total revenue shooting up 95.8% to RM434.2 million from RM221.7 million previously.

Demand in newer markets like Myanmar and Sri Lanka augmented traditional ones like Australia, Bangladesh, Fiji, New Zealand, the Philippines, Singapore, Thailand and Vietnam, and justified the Group’s on-going strategy to grow non-domestic sales.

Yet, regardless of that, the local market continued to be the bigger contributor to Masteel’s top-line, accounting for 65.4%, or RM819.2 million of FY2011 total revenue, expanding by a marginal 4.6% compared to that of FY2010.

Despite the healthy top-line growth, however, the Group faced challenges in its operations, such as increasing raw material prices, less favourable margins due to keen competition towards the end of the year, higher finance costs as a result of higher borrowings, as well as the impairment of RM4.0 million on an asset-backed security.

These factors resulted in a 16.4% drop in profit before tax to RM25.1 million and 12.7% lower net profit of RM24.5 million.

Basic earnings per share dipped to 11.7 sen versus 13.6 sen in FY2010, based on a share capital of 210.6 million shares of RM0.50 par each.

Our balance sheet remained healthy, with shareholders’ equity rising 4.5% to RM500.0 million from RM476.6 million, largely attributed to FY2011 profits.

The net gearing of 0.49 times was mainly due to higher borrowings of RM290.8 million or 12.7% up from the previous year, as a result of higher working capital requirement and capital expenditure. The gearing is still a comfortable level for us to undertake any additional expansion as and when needed.

To reward our loyal shareholders who have stayed with us throughout it all, the Board has recommended a first and final single tier dividend of 1 sen per share, or a 8.6% payout from Masteel’s net profits for the year under review.

This is also to anticipate a new rolling mill expansion project, whereby Masteel is expected to inject some capital into said project, which will commence its construction phase in the second half of 2012.

The proposed dividend is still subject to shareholders’ approval during the upcoming Annual General Meeting on 28 June 2012.

Corporate Social Responsibility (CSR)

Masteel acknowledges that, as an upstanding member of society, we have a role to play in the betterment of the people within the communities that we operate in.

To that extent, the Group has undertaken various initiatives throughout FY2011 to provide hope and charity to those in need. At the same time, we remain focused on making our working spaces a healthy and safe environment for our employees and will continue to do so in the foreseeable future.

One of CSR initiatives was Masteel’s contribution to the on-going Meals on Wheels programme organised by Ti-Ratana Penchala Community Centre, a charitable organisation.

Meals on Wheels was set up by the charity to provide cooked nutritious food to the needy as well as to victims of natural disasters.

For the programme, the Group jointly contributed to the purchase of a brand new 12-seater Toyota van with several well-wishers. In addition, we are also sponsoring the van’s operational expenses, which are estimated to cost around RM20,000 annually.

Masteel is very supportive of organisations such as Ti-Ratana Penchala Community Centre and their efforts to help the needy. Working together with them and others through our other CSR activities, we hope to build a better Malaysia for all.

Corporate Governance

As we look to achieve business sustainability and profitability, Masteel has never lost its adherence to corporate governance best practices. We have long accepted that it is a crucial step in creating and protecting shareholders’ value and we remain committed to its implementation Group-wide.

To that extent, the measures that we have undertaken are highlighted in the Corporate Governance Statement in this Annual Report.

Appreciation

On behalf of the Board, I would like to thank my fellow Directors, Masteel’s management team and all our employees who have helped the Group turn into the robust entity that it is today.

I would like to acknowledge wholeheartedly our valued shareholders, associates, business partners, regulatory bodies and customers, among others, who have supported Masteel throughout this challenging year. We look forward to your continued support in the years to come.

Thank you.

Dato’ Ikhwan Salim Bin Dato’ Haji Sujak

Chairman.

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