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.

FY2011 Overview

Overall, FY2011 was a mixed year for Masteel and the steel industry as a whole. While steel demand continued to be positive as a result of increased construction and manufacturing activities in the region. However, declining margins due to economic uncertainties emanating from abroad had impacted the Group’s profitability.

In spite of that, we were able to achieve a few milestones. For a start, we achieved record revenue of RM1.3 billion, up 24.7% from RM1.0 billion in FY2010.

In addition, in FY2011, leveraging upon Masteel’s expertise in the export markets, we were able not only to grow market share in traditional territories, but also make in-roads into newer markets like Myanmar and Sri Lanka.

Operationally, we had incurred higher financing costs during the year, due to higher working capital requirements coupled with capital expenditure (CAPEX) investments needed to grow our capacity. The other challenging factors include higher energy costs and the effects of foreign exchange (FOREX) fluctuations.

Despite the difficult global market situation toward the end of the year, Masteel was able to weather most of the market gyrations due to our continuing cost control measures that was initiated in 2009 and continued in 2010. This has enabled the Group to remain competitive and profitable in FY2011 with a net profit of RM24.5 million.

Growth Strategies

Acknowledging the need to continue strengthening our capabilities, given Masteel’s aim to be amongst the market leaders as a quality niche steel producer, in FY2011 the Group announced CAPEX plans to invest an estimated RM230 million over the next three years to grow our annual production capacity and improve our profit margins.

This will be achieved by the setting up of a new rolling mill facility in Klang, Selangor, which will be built adjacent to our existing billet plant. This new facility, once fully operational, will have an annual production capacity of 160,000 tonnes, enhancing our total Group capacity of steel bars to over half a million tonnes of finished products per annum.

We will also steadily increase our meltshop capacity by about 18.2% to 650,000 tonnes from 550,000 tonnes currently.

This CAPEX investment will allow Masteel to take better advantage of the opportunities inherent within the domestic market as a result of the various economic initiatives being spearheaded by the Malaysian Government as well as the country’s own resilient property market.

It will also allow the Group to benefit further from new opportunities from export markets, especially in emerging regional economies like Indonesia, South India and Myanmar, which are undertaking various infrastructure initiatives that will require our products.

Masteel is also seeking to augment its core business with ventures that would yield higher returns and are less cyclical in nature; this can be seen by the strategic development in FY2011 whereby a joint venture (JV) with KUB Malaysia Berhad (KUB) to supply and operate a world-class rail transport network within the Iskandar Malaysia region and Woodlands, Singapore, was initiated.

This endeavour will provide us with an avenue to expand into the attractive infrastructure industry. Going forward, the Group will explore similar strategies going forward as and when they may arise.

Corporate Updates

• Head of Joint Venture Agreement with KUB Malaysia Berhad

On 19 January 2011, Masteel and KUB entered into a 60:40 JV agreement to combine capabilities and resources via a JV firm – Metropolitan Commuter Network Sdn Bhd (MCN) – to work on the proposed inter-city rail line within Iskandar Malaysia with a connection to Singapore’s MRT network.

On 15 April 2011, the Menteri Besar of Johor, Dato’ Haji Abdul Ghani Othman, endorsed MCN’s application to build and operate the rail network via a press statement. Subsequently, MCN began the process of engaging various Malaysian Government agencies on the matter.

On 8 August 2011, MCN presented the rail network proposal to the Economic Council, chaired by Prime Minister Dato’ Sri Mohd Najib Tun Abdul Razak. The firm was directed to finalise the matter pertaining to its proposal in conjunction with the Government’s own double tracking programme before reverting back to the council.

In September, October and November 2011, Masteel held a series of discussions with the Ministry of Transport, Keretapi Tanah Melayu Berhad and Railway Asset Corporation on the operational requirements of the MCN project. Barring any unforeseen circumstances, the Group is now awaiting the next presentation to the Economic Council, slated for the first quarter of 2012, to seek approval for the project.

Prospects

2012 has seen the continuation of the effects of the sluggishness in demand that had plagued the global steel industry since the second half of 2011. As a whole, the sector continues to be affected by overall lower prices and higher material costs.

The Euro-zone crisis continues to impact global steel prices while China has seen a slowdown in its economy as its construction and property sectors adjust to monetary tightening by its central government to ease inflationary pressures and to re-position its economy.

However, going forward, the market consensus is one of optimism, with the strong performance of Emerging Market economies and their continued appetite for steel needed for their infrastructure and commercial development.

According to reports in the Indian media, the South Asian nation is expected to boost steel production capacity by 20% to 100 million tonnes per annum by 2013 to meet domestic demand.

Meanwhile, Australian iron ore miners BHP Billiton, Rio Tinto and Fortescue Metals Group remain bullish on China demand in spite of recent slowdowns. The industry giants expect demand for the East Asian giant to continue to grow strongly over the next decade while steel demand elsewhere around the world would rise by about 3% per year over the next eight years.

This forecasted overseas demand bodes well for Masteel, given our continuing strategy to consolidate and grow our exports.

However, we can also take heart from expected continuing domestic demand, especially from two factors: the robust property sector and the increasing number of project rollouts under the Economic Transformation Programme (ETP) initiatives that will fuel demand for steel products.

Masteel’s on-going CAPEX investments to grow our capacity and our strategic location within the Klang Valley, where a large number of major projects are being implemented, plus our competitive prices, will further galvanise our position in the Malaysian steel industry.

Dato’ Sri Tai Hean Leng @ Tek Hean Leng

Managing Director/Chief Executive Officer

FY2010 OVERVIEW

The business strategies undertaken in 2010 were very much a continuation of what we implemented in 2009, when we were faced with one of the worst economic challenges in our corporate history. Our initial measures include keeping our operating costs low in order to stay competitive even with the depressed prices of steel products.

More importantly, we wasted no time in ensuring that Masteel retained its market share during the downturn. We continued to focus on maintaining strong relationships with our local network of dealers and distributors. This in effect kept us responsive to the changes in the local construction and property sectors, from which demand for steel products is mostly derived.

In 2010, demand for steel products in Malaysia returned in tandem with the improved business sentiment, while prices continued to trend up at the same time. With that backdrop, our local sales rose 39.8% year-on-year to RM783.1 million, a level even higher than RM765.7 million achieved in pre-economic crisis year of 2008.

Also, we increased our efforts in expanding the contributions from our export markets, leveraging on our high quality products. Last year, Masteel obtained endorsement from the stringent Australia Certification Authority for Reinforcing Steels Ltd for our steel bars, opening the door for Masteel to enter the Australia and New Zealand market. The efforts paid off for the Group as we saw record revenues from our export markets, rising 74.2% to RM221.7 million in FY2010 versus RM127.3 million in FY2009.

GROWTH STRATEGIES

Growth has always been the focus of Masteel’s management. Today, we are one of the top 5 integrated steel mills in the country, owing to our commitment to continuously enlarge the Group’s capacity.

Going forward, we will continue to drive the Group’s growth by sustainable capacity expansion.

During the year under review, we invested a capital expenditure (“CAPEX”) of about RM18 million to increase the capacity of our billet production plant to 500,000 metric tonnes, from 450,000 metric tonnes in 2009. The expansion was achieved in a cost effective manner, by improving the production efficiency of the existing main steel making facilities.

For the current financial year, we will continue to upgrade the billet plant to a maximum capacity of 550,000 metric tonnes.

With the billet plant expansion, we now have more installed capacity, giving us the larger capacity to meet the anticipated ramped-up of demand in the near future.

As for downstream products of steel bars, our rolling mill in Petaling Jaya is currently among the top producers of steel bars in the country, with about 350,000 metric tonnes production capacity. We aim to invest further CAPEX to install a second rolling mill, boasting a total capacity of 500,000 metric tonnes within the next two years.

The general recovery of the global economy underscored by the fiscal initiatives put in place by governments worldwide to mitigate the recession in 2008/2009 have resulted in boosting construction-related demand for steel products. The other driving factor is the unabated investment in infrastructure by rapidly-developing countries like China, India, Brazil and Indonesia. China’s recent announcement of investing USD200 billion for the construction of low cost housing will further underpin the demand for steel bars.

The reconstruction efforts following the aftermath of the Japan tsunami and earthquake are expected to spur the medium to long term demand for steel.

Locally, the Government’s plan to implement the RM50 billion-Ringgit MRT project in the Klang Valley will certainly augur well for the local steel industry.

As a Petaling Jaya-based steel mill, due to its proximity to all MRT sites, Masteel will certainly benefit from the MRT project, be it a direct or indirect role from our supply of billets and bars for the construction of the rail related infrastructure and stations.

CORPORATE EXERCISES

Private Placement

During the year under review, Masteel undertook a private placement exercise of up to 10% of the issued and paid-up share capital of the Company, or 19.47 million new ordinary shares of RM0.50 each. On 31 July 2011, Masteel successfully placed out 16.12 million new shares to identified investors, raising RM16.3 million proceeds net of listing expenses for the Group.

The private placement exercise resulted in Masteel’s share capital increasing to RM105.4 million, consisting of 210.8 million ordinary shares of RM0.50 each, from RM97.3 million previously.

Warrant Issue

In addition, Masteel undertook a renounceable rights issue of 105.4 million five-year warrants on the basis of one (1) warrant for every two (2) existing ordinary shares held by shareholders, at an issue price of RM0.18 per warrant. The exercise was overwhelmingly oversubscribed by the shareholders, helping to raise RM18.3 million, net of listing expenses, for the Group’s working capital needs.

The five-year warrants are convertible to Masteel ordinary shares on a basis of one (1) warrant to one (1) new ordinary share at an exercise price of RM0.67 per share; thus, expecting to raise up to RM70.6 million proceeds in the future for the Group’s expansion and working capital needs.

CORPORATE DEVELOPMENTS

Subscription And Share Sale Agreement entered with IBA Pharma S.A. (“IBA”) and Bio Molecular Industries Sdn Bhd (“BioM”)

On 2 June 2010, Masteel entered into a Subscription and Share Sale Agreement with IBA – a wholly-owned subsidiary of Ion Beam Application S.A., whereby IBA agreed to undertake strategic investment in BioM – a wholly-owned subsidiary of Masteel before the transaction.

The exercise effectively resulted in Masteel and IBA becoming partners in BioM; whereby Masteel’s shareholding in BioM was reduced to 45.34% of the enlarged share capital of RM18.5 million, and IBA’s investment (inclusive of Societe Belge D’Investissement International shareholding) in BioM stood at 54.66%.

Signing of Heads of Joint Venture Agreement with KUB Malaysia Berhad (“KUB”)

Going into the new financial year of 2011, Masteel has entered into a Joint Venture (“JV”) agreement with KUB Malaysia Berhad to form a 60:40 JV company – Metropolitan Commuter Network Sdn Bhd, to undertake a RM1.23 billion project to supply and operate a world class rail transit network spanning across Iskandar Malaysia and Woodlands, Singapore.

The project was mooted by Masteel and KUB, as we saw tremendous opportunity to play a pivotal role in creating an efficient and world class mass transport system for the rapidly-growing Johor Bahru city and the vicinity of Iskandar Malaysia.

The joint venture (“JV”) project entails buildings of stations, halts and related infrastructure works covering approximately 100.0 km railway in Iskandar Malaysia at an estimated cost of RM1.23 billion, by utilizing the existing Keretapi Tanah Melayu Bhd’s track and land reserve. The integrated railway network will have linkages to Nusajaya, Masai, Kulai, Johor Bahru Sentral, and Woodlands, Singapore.

The JV will first “Build-and-Transfer” the rail transit infrastructure and thereafter “Own-and-Operate” the intracity train system to build up a recurring income base.

The project aims to accommodate an annual ridership of more than 30 million.

With the project, Masteel aims to catapult ourselves from a steel products manufacturer to a key infrastructure player with steady and robust income stream.

The JV company is currently in the process of negotiation with the federal government after having recently received the endorsement from the Johor State Government and IRDA and is targeted to commence construction by early 2012, barring unforeseen circumstances.

DATO’ SRI TAI HEAN LENG @ TEK HEAN LENG
Managing  Director / Chief Executive Officer

Against this backdrop, Masteel posted the best-ever sales of RM1.0 billion for the Group in FY2010, compared to RM687.3 million previously. The impressive top line growth was largely due to both the increase in sales tonnage and the better selling prices of steel bars and billets.

As a result of the improved sales, the Group returned to profits with profit before tax of RM30.0 million in FY2010, against a loss before tax of RM8.5 million in the previous financial year.

In fact, the profits for the year under review would have been higher if not for the write-offs and provision amounting to RM14.0 million – RM5.0 million of which from impairment of bond investment, RM4.7 million as a result of disposal/reduction of stake in our subsidiary company – Bio Molecular Industries Sdn Bhd (“BioM”), and RM4.3 million provision due to a legal suit.

Masteel closed the year with net profits of RM28.1 million, or basic earnings per share (“EPS”) of 13.6 sen, versus a net loss of RM8.1 million or basic loss per share of 4.2 sen.

Our balance sheet continued to strengthen. Whilst shareholders’ equity as at 31 December 2010 showed a 14.7% improvement to RM478.6 million, due mainly to the retained profits; cash and bank balances increased 10.8% to RM48.4 million, and interest-bearing borrowings decreased to RM258.0 million, from RM264.8 million previously. As such, our gearing (net of cash) decreased from 0.53 time in the previous year to 0.44 time, a comfortable level for the Group to undertake further expansion.

With the positive performance, the Board has recommended a first and final single tier dividend of 1.35 sen per share in respect of FY2010. The quantum amounts to 10.1% payout from the Group’s net profits for the year under review. The proposed dividend is subject to shareholders’ approval during the upcoming Annual General Meeting. We look forward to your continued support and confidence in Masteel.

CORPORATE SOCIAL RESPONSIBILITY

The Board acknowledges the importance of Corporate Social Responsibility (“CSR”). Therefore, the company has taken various initiatives to uphold the interests of the society and address issues, while maintaining a healthy and safe environment for employees.

CORPORATE GOVERNANCE

The Board endeavours to adhere to corporate governance best practices within the Group as a crucial step to achieve business sustainability and prosperity. The Board is committed to implementing strategies that are in line with the Board’s objective to create and protect shareholders’ value.

The measures undertaken by the Board to maintain our corporate governance are highlighted in the Corporate Governance Statement in the Annual Report.

APPRECIATION

On behalf of the Board, I would like to express my appreciation to my fellow Directors, management and Masteel’s employees for the hard work and the steely resolve in turning the Group around.

To our valued shareholders, the Board is appreciative of your unwavering support. At this juncture, allow me to reiterate our steadfast commitment in making Masteel a strong investment case for growth.

Thank you.

DATO’ IKHWAN SALIM BIN DATO’ HAJI SUJAK
Chairman

For the financial year under review the Company recorded a turnover of RM280.8 million and a pre-tax profit of RM35.9 million. Compared to Year 2003’s turnover of RM242.4 million and Profit Before Tax (PBT) of RM19.6 million, the Financial Year 2004 represented an increase of 15.8% on turnover and 83% increase in PBT, of which a write-back of electricity in arrears accrual in previous years amounting to RM11.8 million was included. This resulted in a 23% increase in profit margin as compared to Year 2003.

In addition, the Company has out-performed its profit projection stated in its initial public offerings (IPO) prospectus. Compared to the forecast turnover of RM230.3 million, we achieved an actual turnover of RM280.8 million, exceeding the projection by a marked 22%. As for the Profit After Tax (PAT) of RM24.1 million (net of TNB write-back for electricity arrears), it exceeded the forecast PAT of 22.4 million by a good 8%.

OPERATION REVIEW

In terms of plant capacity, we saw an improved utilisation for steel billets from 58% in Year 2003 to 62% in Year 2004. This had resulted in greater economy of scale for billets production. For steel bars we maintained the same utilisation rate at 67% for both years.

The average steel selling pices increased from RM1,214 per metric tonne (MT) to RM1,570/MT, representing an overall increase of 29%. Likewise, the average selling price for steel billets had also increased from RM875/MT to RM1,294/MT or 48% increase as approved by the Government since April 2004.

MSW has also successfully produced its first batch of Grade 12K premium billets for the production of highgrade wire rods for a reputable client in Sarawak.

CORPORATE DEVELOPMENT

On 7th February 2005, the Company was listed on the Main Board of the Bursa Malaysia Securities Berhad. The IPO was oversubscribed 38 times from the original target of RM30.3 million.

FUTURE OUTLOOK

The first quarter of Year 2005’s performance is expected to be slow due to the festive season and the repatriation of foreign workers in the construction industry. However, looking forward, the Company anticipates a much better outlook for the second, third and fourth quarters, supported by the following factors:-

1.Construction Industry Boost

The Government recently announced its decision to bring forward 26 projects under the 9th Malaysian Plan for immediate implementation. These projects worth RM2.4 billion will strongly boost the local construction industry, and will increase the domestic demand for steel.

2. Positive Economic Outlook

The Bank Negara Malaysia projected a GDP growth of 5% to 6% for the Year 2005. This will be driven mainly by private sector consumption and investments.

3. New Export Markets

On the export side, MSW aims to export its steel products to new markets, such as Thailand and Indonesia.

4. Anticipation of Higher Steel Prices

Recent high demand for steel in China has resulted in significant price hikes in iron ore by as much as 71.5% and in coal by 100%! The Chinese government has also removed the 13% tax rebate for steel exporters in China thereby increasing the price of billets. This would translate to higher steel prices, which is to be anticipated.

With the possibility of a further increase in steel prices, the Board is cautiously optimistic of the Company’s performance in Year 2005.

ACKNOWLEDGEMENTS

On behalf of the Board, I wish to express our deepest appreciation to our shareholders, customers and associates for the continuous trust and support for the Company. On the same note, the Board and I would like to extend our thanks and gratitude to our management and staff for their dedication and commitment.

TAI HEAN LENG @ TEK HEAN LENG

Managing Director/Chief Executive Officer

The year ended 31st December 2004 was marked by the best financial results in the history of the Company in terms of turnover since its incorporation in 1971.

The Company turnover recorded a stronger year-on-year growth of 15.8% from RM242.4 million to RM280.8 million as compared to Year 2003. The Company has also achieved a Profit After Tax (PAT) of RM35.9 million, up from RM19.6 million in the previous year. The increase in PAT was mainly due to the write-back of electricity in arrears accrual by Tenaga Nasional Berhad from past years’ operations, amounting to RM11.8 million.

HIGHER STEEL PRICE & EXPORT MARKET

Two main factors contributed to the Company’s remarkable performance. They were the higher prices of steel bars and billets approved by the government in April 2004, and the increase in the exports of steel billets to ASEAN countries.

FORECAST TO BE ACHIEVABLE

The Company has successfully initiated its strategies to ensure the continuous growth of the company for the forthcoming years. Subject to the influence of growth effects from both the global and Malaysian economies, we are cautiously optimistic that the Company will achieve its forecast goals for the Year 2005.

ACKNOWLEDGEMENTS

I am confident that the management and staff of Malaysia Steel Works (KL) Bhd will show their resilience and rise to the occasion to achieve the projected profit for Year 2005. I would like to express my gratitude for their efforts and commitment in the past year, and many thanks to the support and loyalty of our customers, suppliers and business associates.

SENATOR DATO’ IKHWAN SALIM BIN DATO’ HAJI SUJAK

Chairman

For the year under review, the business environment in which the local steel industry operated in was more challenging as compared to the previous year. Overall demand of steel decreased and cost of raw materials and freight was affected by fuel price hike.

Against this background, Masteel achieved a turnover of RM306.4 million and a Profit Before Tax of RM23.3 million for the financial year ended 31 December 2005.

Compared to the previous year, the Company’s revenue grew 9.1% from RM280.8 million, while Profit Before Tax decreased 35.1% from RM35.9 million, which included a RM11.8 million write-back of electricity arrears accrual in previous years. Not considering the write-back, the actual year-to-date reduction in Profit Before Tax was 3.3%.

OPERATION REVIEW

In terms of operation, the year was marked by strategic implementation of cost-cutting measures to increase both cost-efficiency and productivity in the manufacturing of our steel products. The objective was to utilise the best plant and process technology to produce quality steel products at the lowest production cost.

For our meltshop facilities in Bukit Raja, Klang, we had in earlier months of 2005 upgraded all existing machinery to be adapted to use natural gas. In June, the switch from liquefied petroleum gas to natural gas was successfully commissioned. This strategic move was expected to reduce the cost of production by about 10% per annum.

In August, an agreement was signed with Danieli & C SpA of Italy to provide the plant with the latest Supersonic Lancing System (SLS) technology, which would effect in a reduction in production cost by about 5%, and an increase in production capacity by 10% per annum. The technology will be fully utilised in the Bukit Raja plant by second half of 2006 to further enhance our operation’s competitiveness.

OUTLOOK

The Malaysian Iron & Steel Industry Federation (MISIF) forecast the local steel industry to grow by 8% in 2006, based on recovery of construction sector. The overall outlook for 2006 is positive, as supported by the following factors:

1.Construction Industry Recovery

Under the Ninth Malaysia Plan, the Government has recently announced allocations of RM48.6 billion and RM18.4 billion for the development of infrastructure and housing projects respectively. The implementation of the plan, which will start in 2006, is expected to boost the local construction industry at an average of 3.5% for the next five years.

The steel industry is looking to benefit from the positive growth and re-bound of the construction industry.

2. Positive Economic Outlook

The Bank Negara Malaysia projected a strong GDP growth of 6% for the year 2006, underpinned by stronger exports and resilient local demand.

3. Anticipation of Higher Steel Prices

Due to positive outlook in the construction sectors of ASEAN region, prices of steel is on the upswing in the first quarter of 2006. Overall, international steel price increased by 20% in the quarter.

In anticipation of a further increase in steel prices, the Board of Directors is cautiously optimistic of the Company’s performance in 2006.

ACKNOWLEDGEMENTS

After a year of challenges, I wish to thank all the management and staff at Masteel for their contribution to our performance in 2005. On their behalf, I would also like to thank our customers and shareholders for their trust and support, as we continue to put our efforts to build a stronger Masteel for tomorrow and the long term.

TAI HEAN LENG @ TEK HEAN LENG

Managing Director/Chief Executive Officer

The Year 2005 proved to be a challenging 12-month for Malaysia’s steel industry marked by lower steel demand due to continuous contraction of the local construction industry and fluctuation in global steel prices.

Despite the challenging environment, Masteel recorded a revenue growth of 9.1% to RM306.4 million, and a Profit Before Tax of RM23.3 million, which was marginally lower than the adjusted Profit Before Tax of RM24.1 million for 2004.

SUSTAINED PROFITABILITY & DIVIDEND PAYMENT

The result of sustained profitability was achieved on the back of several strategic moves.

Since the second half of year 2005, the management has put in place aggressive cost-cutting measures ranging from switching to lower cost fuel type to investment in technology to reduce electricity consumption and increase production capacity.

With funds raised from the initial public offering, the company’s borrowing was lowered, thereby reducing the overall gearing to about 0.56. In terms of exports, a total of 21% of our products was sold to overseas markets, which includes new markets like Vietnam and Thailand last year.

In view of sustained profitability, the Board of Directors has proposed a dividend payment of 1.5 sen per share, which is not tax exempted for the financial year under review.

POSITIVE OUTLOOK FOR 2006

Looking forward, I am pleased to say that the outlook for Malaysia’s steel industry in 2006 is positive.

The Ninth Malaysia Plan announced by our Prime Minister on 1 April 2006 is expected to boost the local construction industry for the next five (5) years. This prospect will augur well for the steel industry, which will see an increase as well as stable demand for construction-based steel products in the next few years.

At Masteel, we will continue our efforts to reduce cost of production through the deployment of latest technology, and to intensify sales in the local and export markets.

ACKNOWLEDGEMENTS

With the positive outlook, I am confident that the management and staff of Masteel will continue to achieve sustained profitability, if not better results in year 2006.

I would like to take this opportunity to express my appreciation and gratitude to the management and staff for their commitment and efforts last year, and many thanks to our customers, business associates as well as the Government and regulatory bodies for their continuous support and guidance.

SENATOR DATO’ IKHWAN SALIM BIN DATO’ HAJI SUJAK

Chairman

For the financial year ended 31 December 2006, the Company recorded a revenue of RM362.2 million and a profit after tax of RM30 million. As compared to the previous year’s turnover of RM306.4 million and post-tax profit of RM23.3 million, the financial year under review achieved an increase of 18% in revenue and 29% in earnings respectively.

In tandem with the steady growth in revenue and earnings, the Company’s earnings per share also grew by 27% from 17.78 sen to 22.56 sen during the reviewed period.

OPERATION REVIEW

In terms of operation, the year saw the completion of strategic implementation of cost-cutting measures, and the realisation of tangible benefits from these implementations as reflected in the financial year’s positive results.

Since 2005, we had invested in new technology to increase both cost-containment and improvement of productivity in the manufacturing of our steel products, so as to further enhance our operation’s competitiveness.

For our meltshop facilities in Bukit Raja, Klang, we had upgraded all existing machinery to adapt to natural gas usage. This strategic move has helped to reduce the cost of production by about 10% last year.

The 4th strand caster and other upgrades were also fully implemented in the Bukit Raja plant by second quarter of 2006, resulting in a reduction in production cost and increase in production capacity by 10 percent per annum respectively.

CORPORATE DEVELOPMENT

On the corporate front, the Company completed a Private Placement exercise of 13 million new shares on the Main Board of Bursa Malaysia Securities Berhad on 29 January 2007.

OUTLOOK

Going forward into 2007, the performance of the Company is expected to further improve, barring any unforeseen circumstances, with the government’s recent adjustment increasing the prices of steel bars and billets by 20%.

The Malaysian Iron & Steel Industry Federation (MISIF) forecast the local steel industry to grow by 10% in 2007, based on continuous recovery of construction sector. The overall outlook for 2007 is positive, as supported by the following factors:

1. Positive Economic Outlook

The Bank Negara Malaysia projected a continuous and steady GDP growth of 6% for the year 2007 with the construction, services and agriculture sectors being identified as three key sectors of growth.

2. Construction Industry Recovery

The construction sector is projected to turn around in 2007 to register a growth of 3%, against a contraction of 0.5% in 2006.

Under the Ninth Malaysia Plan, the Government has allocated up to RM10 billion for the development of Southern Corridor in the State of Johor, which includes the development of a special economic zone known as the Iskandar Development Region. The implementation of the plan, which will start in 2007, is expected to boost the local construction industry.

The steel industry is looking to benefit from the positive growth and re-bound of the construction industry.

3. Export Potentials

Singapore’s highly profiled casino/resorts mega-project development plan will also augur well for Malaysia’s steel industry due to our proximity to the island city.

4. Foreign Exchange

The strengthening of the Malaysian Ringgit against the US Dollar will reduce the cost of imported materials necessary for our manufacturing process, thereby benefiting our overall cost of production.

ACKNOWLEDGEMENTS

I would like to take this opportunity to thank all employees of the Company for their commitment, dedication and contribution in continuing to improve the Company’s performance. On behalf of all members of the Company, I also want to thank our customers, business associates and shareholders for their valued support and continuing confidence in the Company and its management team.

DATO’ SRI TAI HEAN LENG @ TEK HEAN LENG

Managing Director/Chief Executive Officer

According to the Bank Negara Malaysia economic performance report, Malaysia’s economy strengthened in 2006 with a 5.9% expansion in real gross domestic product (GDP). Both the services and manufacturing sectors continued to be the main drivers of growth. The construction sector saw a gradual recovery registering a positive growth by the final quarter of the year.

Domestic demand for steel in 2006 grew in tandem to the moderate growth in manufacturing and construction sectors. Overall, steel was traded at higher prices in the year due to increase in global steel prices.

The Southeast Asia region saw a significant reduction in supply of steel from China as a result of the country’s tightening controls on steel exports. This drove ASEAN member countries to source steel supplies within the region.

FINANCIAL RESULTS

For the financial year ended 31 December 2006, Masteel reported a 18% year-on-year increase in revenue to RM362.2 million and an 29% year-on-year increase in profit after tax to RM30 million.

The healthy growth in both revenue and earnings was contributed by a combination of factors, namely the increase in domestic and regional demand of steel, higher selling prices, and onset of cost savings from production during the period.

DIVIDEND PAYMENT

In respect of the positive financial results, the Board is pleased to recommend a first and final dividend of 2.1 sen per share less 27% taxation totaling RM2,238,180.00 for the financial year ended 31 December 2006.

This proposed dividend is subject to the approval of shareholders at the Company’s forthcoming Annual General Meeting.

OUTLOOK

The surge of global steel consumption and steel prices are expected to lead the industry into a more interesting business environment in 2007.

Singapore’s casino/resorts mega-projects projects are expected to boost steel demand in the Southeast Asia region.

On the local front, we are optimistic that the Ninth Malaysia Plan outlining the Malaysian Government’s efforts to boost the construction industry will further improve domestic demand of steel in 2007, barring any unforeseen circumstances. We are also optimistic that the Company will benefit from the Government’s investment in the Iskandar Development Region in the State of Johor.

All the above mentioned prospects will augur well for the steel industry, which will see an increase in as well as stable demand of construction-based steel products in the next few years.

ACKNOWLEDGEMENTS

On behalf of the Board of Directors, I wish to express our sincere gratitude and appreciation for the support of our valued customers, business associates, bankers, government authorities and shareholders, and we look forward to your continued support in the future.

To all our management and staff, we thank you for your untiring efforts in helping the Company achieve its good performance for the financial year under review. My sincere thanks and appreciation also goes out to the Board members for their counsel and guidance during the past year.

SENATOR DATO’ IKHWAN SALIM BIN DATO’ HAJI SUJAK

Chairman

Once again, year 2007 represented another historical landmark for the Group with its steel business achieving its highest turnover of RM548 million since its inception in 1971.

The strong performance was complimented by the Group achieving its highest profit before tax of RM46 million surpassing all previous PBT records.

This strong performance for year 2007 was primarily attributed to the raise of domestic and global demand for steel coupled together with the successful implementation of various technologies by the Management to improve plant efficiency.

BUSINESS OUTLOOK

Looking forward to 2008, we expect to benefit from the beginning of the ‘Super Cycle’ for steel products worldwide.

This ‘Super Cycle’ is underscored by the surge of demand primarily from China, India, Middle East and Russia. As the economics of these regions begin to decouple from the US economy, the impact of a possible onset of a U.S. recession is expected to be well cushioned.

With the potential merger of two of the three major iron ore producers in the world that contribute up to 80% of the international supply of this basic feedstock and the scaling of historical records of crude oil prices, steel prices are expected to continue to climb in the foreseeable future. And domestically, the pace for the implementation of the RM220 billion, 9th Malaysia Plan (2006-2010) is expected to be quicken in year 2008 as the bulk of projects earmarked is expected to be constructed within the next 3 years.

The Group is confident that it is well poise to fully capitalize on these favorable business environment. Operationally, the Management of the Group is continuing its relentless efforts to ‘Cost Down’ its production costs to counter the effects of rising consumables and raw materials prices.

CORPORATE DEVELOPMENT

The company had successfully placed out to institutional investors through the issuance of 13,000,000 new share capital or 10% of paid up share capital during the financial year and the exercise was completed in January 2007. The total issued share capital is 146 million ordinary shares.

CORPORATE SOCIAL RESPONSIBILITY

Under the Corporate Social Responsibility (CSR) initiatives, the Group has set its sights to make the reduction of Green House gases from the environment as its main CSR agenda. The creation of 2 acres ‘Green Lung’ has been initiated with the planting of suitable flora species. It is the objective of the Group to increase the acreage of the ‘Green Lung’ within its 40 acres industrial complex to eventually cover 15% of its real estate within the next 3 years. In order not to deplete the valuable water resources needed to maintain these ‘Green Lung’, appropriate rain ‘Catchment Devices’ is being install to minimize the used of Jabatan Bekalan Air (JBA) water supply.

The Group’s aspiration to venture into the high growth and high margin Bio Technology section has became a reality in 2007, with the conferment by Malaysian Biotechnology Corporation Sdn Bhd to Bio Molecular Industries Sdn Bhd, a wholly owned subsidiary of Masteel, the very stringent and prestigious Bio Nexus status certification in July 2007. The construction of its RM40 million facility in Sepang has also commenced in late 2007 and market is expected to receive its first batch of high grade radiopharmaceuticals product by year 2009.

APPRECIATION

On behalf of the Board, I would like to take this opportunity to thank our invaluable shareholders, customers, bankers, suppliers and government authorities and without doubt, our achievements will not has been made possible without the driving force of our prudent management team and dedicated employees, whom have dedicated their unwavering commitments, time and energy to ensure the success of our businesses. I gratefully salute all of you!

DATO’ SRI TAI HEAN LENG @ TEK HEAN LENG

Managing Director/Chief Executive Officer

The year was endowed with particularly strong earning for the 2nd half of 2007. This was underpinned by surge of domestic demand for steel bars by vibrant construction activities and the improvement of international steel prices that have spurred the demand for our steel exports.

FINANCIAL RESULTS

2007 has been an outstanding year for Masteel, thanks to the remarkable team spirits of the Group whom have work hard to strive to gain more markets share both locally and internationally. The turnover grew by more than 51% compared to 2006’s and also achieved an outstanding profit of RM44.33 million which is 48% higher than the previous year. The other contributing factors are higher selling price and cost savings measures being undertaken during the financial year.

DIVIDEND PAYMENT

In respect of the financial year ended 31 December 2007, the Board of Directors is recommending a first and final single tier dividend of 3.0 sen per share amounting to RM4,380,000.

The proposed dividend is subject to the approval of shareholders at the Company’s forthcoming Annual General Meeting.

OUTLOOK

The prospect for the year 2008 is expected to be better than 2007. With the much publicized national election over, the ruling coalition party is expected to follow through with the implementation of the 9th Malaysia Plan which will help to sustain the forecasted 5.2% national growth rate for 2008, we expect the country will continue to enjoy moderate and sustainable growth throughout the year.

ACKNOWLEDGEMENTS

The support and confidence shown by the Group’s shareholders, valued customers, bankers, suppliers and business associates are much appreciated. It has been an eventful year and the Board acknowledges the dedication and commitment of its Management team.

In closing, I take this opportunity to thank my fellow Board members, for their professionalism and hard work that was dedicated to the Group.

SENATOR DATO’ IKHWAN SALIM BIN DATO’ HAJI SUJAK

Chairman

During the financial year under review, 2008 represents significant improvement of sale and profit over the previous year. A turnover of RM881.2million was achieved with a profit before tax of RM85.7million.

This performance was attributed to the exceptional demand and high prices of steel from China and the Middle East. The previous years’ investment by the company in technological equipment, process and training for cost reduction had resulted in improved operational efficiency which was completed in time to capitalize on the exceptional market condition of 2008.

The management’s conservative stance in late July 2008 that resulted in the rapid reduction in the company’s raw material purchase for the 3rd quarter and 4th quarter had spared the company from severe stock value impairment and write downs.

BUSINESS OUTLOOK

With the onset of the global financial crisis triggered by the widespread U.S subprime housing mortgage defaults in the 2nd half of 2008, this had resulted in the substantial contraction of Gross Domestic Product (GDP) in many countries worldwide.

And as a consequence, the demand for steel is expected to be significantly reduced. A period of soft uptake and price volatility is expected to prevail for most part of 2009.

The effects of various governments’ rescue packages are expected to be felt in late 2009 onwards. The Malaysian government’s stimulus budgets of RM7.0 billion and RM60.0 billion coupled with the expenditure from the 9th Malaysia Plan is expected to help to stabilise steel prices domestically and improve the demand for steel products during the later part of 2009.

CORPORATE DEVELOPMENT

There is no placement took place during the year as the investment community took a cautious stand on various sectors and with the lower share price, the management decided to wait for the right opportunity to come by again when the stock market improves in the future.

CORPORATE SOCIAL RESPONSIBILITY

Under the Corporate Social Responsibility (CSR) initiatives, the Group continues to improve on our plant environment by planting trees to enhance our ‘green lung’ programme initiated during 2007. A sum of RM130,000 has been spent on this CSR project.

APPRECIATION

On behalf of the board, I would like to take this opportunity to thank our valuable clients, shareholders, bankers, suppliers, and relevant government authorities for their continuous supports to our group. My appreciation is also extended to the management and staffs for their hard work and contributions during the year.

DATO’ SRI TAI HEAN LENG @ TEK HEAN LENG

Managing Director/Chief Executive Officer

Masteel responded well to the favorable business environment and continued to excel in both the local and international market. Masteel achievement is reflected in the commendable financial results over the previous years. China’s imposition of export duties on billets and bars as well as removal of rebates for steel products had helped to increase the prices of steel billets and bars. Meanwhile, the cost of raw materials and other consumables had also increased in tandem with the higher finished steel products.

The gradual implementation of the 9th Malaysia Plan had also spurred the demand for steel for most part of 2008. However, in 4th quarter, the effects of the global financial crisis have started to impact the demand and prices of steel. Overall the performance of Masteel was satisfactory and a new level of profitability was achieved for this year.

FINANCIAL PERFORMANCE

During the year under review, Masteel had achieved a starling revenue of RM 881.2 million and net profit before tax of RM 85.7 million. These results also showed a 61% and 86% increase respectively over its 2007 performance. The robust demand and higher selling price for steel bars and billets as well as the various cost reduction programmes that was successfully carried out and plant capacity improvement also helped in contributing to the better bottom line.

The government’s lifting of the ceiling control price for billets and bars during first half of 2008 had also aided the rapid raised of turnover for the company and ended many decades of government intervention in domestic steel prices.

DIVIDENDS

The Board of Directors is pleased to announce a first and final single tier dividend of 2.5 sen per share (2007 : 3 sen per share) net dividend payable. If approved at the Annual General Meeting, will amount to RM 4.87 million (2007 : RM 4.38 million).

OUTLOOK

The financial performance of 2009 will largely be dependent on the effectiveness of the various stimulus packages and the restructuring of the financial and banking sectors in America and European Community countries. With the new government headed by Yang Amat Berhormat Dato’ Sri Najib Tun Razak, the effects of the RM 60.0 billion stimulus plan is expected to be felt by the 4th quarter of 2009. However, the demand and prices of steel globally are expected to be substantially reduced for 2009. The performance of the company is expected to gradually improved form the latter part of the year.

ACKNOWLEDGEMENTS

On behalf of the Board, I would like to extend our deepest appreciation to our valued clients, shareholders, business associates, financiers and relevant authorities for their continuous supports and confidence shown to us. I would like to take this opportunity to extend my appreciation to our management and staff for their continued dedications and contribution toward the future growth of the Group.

DATO’ IKHWAN SALIM BIN DATO’ HAJI SUJAK

Chairman

For the Financial year ended 31 December 2009, the Group recorded a turnover of RM687.3 million with a marginal loss before tax of RM8.5million.

The weaker financial performance was attributed to the poor demand and low margin of steel products during the 1st half of 2009 in which the effects of the global financial crisis had reached its crescendo. During the 2nd half of 2009, Masteel’s customers returned to the market and eagerly bought up stock piles of steel products to replenish their depleted inventories due to abating market uncertainty and liquidity paralyses. This was reflected in the company’s return to profitability during the 2nd half of 2009.

The Group had also made significant progress in the export of its steel products to all major cities of Australia and the new export markets had contributed positively towards the bottom line of the Group in the second half of 2009.

BUSINESS OUTLOOK

In view of the positive Gross Domestic Product (GDP) growth for most Asian Countries, which is led by China and further reinforced by the recovery in the US and Brazil, the demand for steel products is expected to increase by 25% as compared to 2009. Prices of steel products have continued to rise underscored by the 100% increase of iron ore prices effective from April 2010.

With the commissioning of the new slit rolling equipment from Italy in the Petaling Jaya rolling mill, Masteel is expected to improve its margin by producing smaller diameter steel bars which sell at a price premium over conventional steel bars.

The timely installation of this equipment will help enhance Masteel’s steel bar market shares domestically and abroad.

With the overall strengthening of demand and prices of steel bars and billets, Masteel is expected to be able to price in any rise of raw material costs to its products without impeding its targeted sale volumes for the year.

CORPORATE DEVELOPMENT

The earlier approval received for the private placement has lapsed and no placement had taken place during the year due to weak market sentiments. The management has decided to time its next placement when the market improves its valuation of the company’s stocks to better reflect the underlying value of its business.

CORPORATE SOCIAL RESPONSIBILITY

We recognize the importance of the implementation of comprehensive Corporate Social Responsibility (CSR) policies on our business operations and will continue to incorporate the appropriate CSR framework in our tactical business plans especially in the areas of conservation of environment and enhancing the positive impact of our business activities on the community.

APPRECIATION

On behalf of the Board, I would like to thank all our valuable clients, shareholders, bankers, suppliers and relevant government authorities for their continuous support to our Group.

DATO’ SRI TAI HEAN LENG @ TEK HEAN LENG

Managing Director/Chief Executive Officer

Masteel had not been spared by the impact of the financial crisis emanating from the US sub prime fall out. The crisis had resulted in the dramatic reduction of global liquidity and demand that had led to a substantial plunge in selling price and sale volumes for steel. The negative impact was most prominent during the first half of 2009.

Fortunately, global and domestic restocking activities for steel products commenced in earnest in July 2009 and consequently the company enjoyed better sale volume and margin during the second half of 2009. However, this recovery in earnings was insufficient to offset the weak performance of the 1st half of 2009.

On a positive note, Masteel has continued to manufacture higher quality products. Our efforts have culminated in gaining the endorsement from the Australian Certification Authority for Reinforcing Steels Ltd certifying that Masteel steel products conformed to the very stringent Australian Standard. This accolade had led to the signing of a RM120million off-take agreement with Stemcor UK for sale of steel bars to Australia.

Despite the difficult business environment this year, Masteel continued to improve its productivity and product quality to pave the way for better times ahead.

OUTLOOK

With strong growth being registered this year in Brazil, Russia, India, Indonesia and China as well as overall economic recovery in other Asian countries, the overall demand for Masteel’s steel products are expected to recover from the lows of 2009. The economy of United States of America have also continued to stabilise and register a positive growth which will further drive the global recovery. Owing to higher steel prices and better demand from the various stimulus packages that are being implemented by various governments, the performance of the company is expected to improve in 2010.

ACKNOWLEDGEMENTS

I would like to extend my sincere appreciation to the management and staff for their performance, dedication and hardwork. Last but not least, my heartfelt thanks to our valued customers, stakeholders, business, financial partners and the relevant authorities for their strong support and confidence they have had in the Group.

DATO’ IKHWAN SALIM BIN DATO’ HAJI SUJAK

Chairman