Dear Shareholders,

On behalf of the Board of Malaysia Steel Works (KL) Bhd (“Masteel” or “the Group”), it is my pleasure to present to you the 2012 Annual Report and audited financial statements for the financial year ended 31 December 2012 (“FY2012”).

FY2012 was a challenging year for the Malaysian steel sector as a whole, hampered as it was by issues like lower average selling prices, volatile raw material costs and overcapacity in many types of steel products. The sector was further compounded by the economic woes and/or slowdowns being experienced by many markets around the world.

Masteel, however, was able to withstand many of these challenges. In fact, we remained in positive territory when compared with our peers.

The Group’s use of high-grade scrap metal – with its more stable pricing – and not iron ore as our feedstock meant that we were spared the fluctuations in the latter’s prices. We were also not impacted by the steel dumping issue, which hurt many manufacturers here, as the contentious import of steel products are not steel bars.

Additionally, our strategic location within the Klang Valley meant that we benefited from the growing demand for steel bars for many Economic Transformation Programme (‘‘ETP’’) projects – like the light rail transit (‘‘LRT’’) extension and the Klang Valley Mass Rapid Transit (‘‘MRT’’) train network – as well as for private sector property development projects.

Lastly, Masteel’s astute and dynamic management – and continuing investments in new technologies and processes to lower costs and improve efficiencies – have allowed the Group to react to opportunities that presented themselves as well as to weather the worst storms of 2012.

FY2012 Financial Highlights

Masteel’s fortitude during this challenging FY2012 has been rewarded by a historic milestone, the Group’s highest-ever revenue to date since our foundation in 1971. We were able to record revenue of RM1.31 billion, up 4.7% from FY2011’s RM1.25 billion, despite the lower average selling prices in the local market, which impacted many of our peers.

This success was mostly achieved on the back of increased volume sales domestically, which accounted for 83.1% of our total revenue, as we leveraged on our central location and solid reputation to provide steel bars for projects like the new Kuala Lumpur International Airport 2 (‘‘KLIA2’’) and Klang Valley MRT, amongst others.

As a result, Masteel was able to mitigate the adverse impact and, to a greater extent, reduce the negative market sentiments that hindered the domestic steel industry. This allowed the Group to sustain FY2012 profit before tax (‘‘PBT’’) and net profit of RM24.9 million and RM24.3 million respectively.

Basic earnings per share was 11.5 sen versus 11.6 sen previously.

Masteel’s balance sheet remains in a robust state. Shareholders’ equity rose 5.2% to RM525.9 million from RM499.9 million previously. The Group’s FY2012 cash and cash equivalents stood at RM48.0 million, up 52.0% from FY2011’s RM31.6 million. Total borrowings dropped 2.4% to RM283.7 million from RM290.8 million a year ago.

Our net gearing of 0.44 time – down from 0.49 time previously – allows Masteel the flexibility to undertake additional borrowings to fund further growth initiatives in the future.

In respect of the financial year ended 31 December 2012, the Group declared an interim dividend of 1 sen per share, or an 8.9% payout from our FY2012 net profit. This dividend was paid out to shareholders on 10 December 2012.

We have also proposed a final single tier dividend of 0.5 sen per share, subject to the approval of shareholders at Masteel’s forthcoming Annual General Meeting (“AGM”). If approved, this will take the Group’s dividend payout in respect of FY2012 to 1.5 sen per share, or RM3.27 million. This translates into a dividend payout ratio of 13.4%, one of the highest since our listing on the Main Market of Bursa Malaysia Securities in 2005.

Corporate Social Responsibility (“CSR”)

As an outstanding pillar of the community, Masteel believes in fostering, supporting and enhancing human dignity and welfare. We are a strong believer in upholding the fundamental principle that an all-encompassing holistic approach is needed to improve the well-being of our civil society.

As such, and as part of Masteel’s CSR activities for FY2012, the Group contributed back to society by assisting in the 15th Anniversary Charity Dinner organised by the non-profit Ti-Ratana Welfare Society, which was attended by the Prime Minister Dato’ Sri Mohammad Najib Tun Razak.

The gala dinner was undertaken to help raise funds for the construction of a four-storey, RM8.0 million centre for underprivileged children.

It is through efforts like these that Masteel hopes to make a difference to the society that we operate in.

Corporate Governance

The Board of Masteel is fully committed to the best practices of good corporate governance. We see that such commitment is the only way to enhance and protect shareholder value.

Hence, we adhere diligently to the highest standards of transparency in our day-to-day operations. The steps undertaken by the Group to ensure this are highlighted in the Corporate Governance Statement of this Annual Report.

Appreciation

I would like to take this opportunity to thank my fellow Board members, the management team and the more than 600 employees working for Masteel that have worked steadfastly together to drive the Group to where it is today.

I would also like to extend my deepest gratitude to Masteel’s valued shareholders, business associates, customers, regulatory bodies and many others who have supported the Group throughout FY2012. We hope that our strong relationship will continue to strengthen and prosper in FY2013 and beyond.

Thank you.

Dato’ Ikhwan Salim Bin Dato’ Haji Sujak
Chairman