On behalf of the Board of Directors, I am pleased to present the Annual Report of Melewar Industrial Group Berhad ("MIG") and its group of companies ("the Group") for the financial year ended 30 June 2011. FINANCIAL RESULTS For the financial year under review, the Group recorded a total revenue of RM754.8 million, which was 6.8% higher than the previous year’s RM707.1 million. This was largely due to revenue generated by the Energy Division, which started operating its power station in early January this year. Profit After Tax ("PAT") for the financial year was RM3.3 million compared to the previous financial year’s RM79.0 million. It should be noted that for the previous financial year, the mark-to-market gain on Gindalbie shares alone was RM30.5 million and that Foreign Exchange gain contributed another RM16.3 million towards the bottom line. For the year under review, there were lower sales from the Steel Division due to the soft market conditions that prevailed for much of the year. Also contributing to the drop in profit were pre-operating overhead expenses of RM7.8 million incurred in the first six (6) months, prior to commencement of operations of the Energy Division’s power station and also an impairment of about RM7.2 million. DIVIDEND Due to the weak performance for the period under review, the Board of Directors do not recommend the payment of any dividend for the financial year ended 30 June 2011. DIVISIONAL PERFORMANCE The Group’s business activities can be analysed by its three (3) core business divisions, namely: Iron and Steel; Energy; and Engineering. 1.0 IRON & STEEL DIVISION The Group’s Iron and Steel Division is made up of its interest in the following companies: Melewar Steel Tube Sdn Bhd – Manufacturer of Steel Tubes Mycron Steel Berhad - Manufacturer of Cold Rolled Coil ("CRC") Steel Sheets Melewar Steel Mills Sdn Bhd - Manufacturer/Trader of Steel Rebar, Billets and Scrap Gindalbie Metals Ltd - Mining of Iron-Ore in Australia 1.1 Industry Overview (Iron & Steel Division) The steel industry has always been subject to the volatility of prices, both for finished steel products as well as raw materials like ironore, coking coal and steel scrap. Volatility in steel demand has also become a key factor especially since the system of quarterly orders both for steel products and raw materials were replaced with a monthly order system. Domestic demand for steel was not insulated against the uncertain global economic condition, which saw sales tonnages fall throughout 2010 and 2011. Fear of a weakening US economy and the jitters over the European government bond default caused significant uncertainties, resulting in down-stream customers placing orders on a minimal need-only basis. After a very strong first half in calendar year 2010, the steel industry turned sluggish by the 3rd quarter of the year. Customers became cautious and generally stayed on the sidelines, buying only against back-to-back orders. This conservative stance reflected their unwillingness to stock up on their inventory in case the market price for steel went down further. 2011 started with the expectation that steel prices would increase following a rather lacklustre 4th quarter of 2010. Prices did start to move up, which was reinforced by the floods in Australia thus affecting the supply of iron-ore. However, the price increase did not sustain with many customers preferring to stay on the sidelines and adopting a wait-and-see attitude instead of replenishing their already low inventory. In summary, the financial year ending 30 June 2011 can be classified as a poor period of low demand for the domestic and international steel industry. 1.2 Steel Tube Operations (Melewar Steel Tube Sdn Bhd) The Group’s Steel Tube manufacturing operations are conducted through its 100% owned subsidiary, Melewar Steel Tube Sdn Bhd. Steel Tube sales for the Group are largely from the Engineering and Construction industry, which represents 50% of sales tonnage and the balance representing the Furniture, the Water Supply, the Automotive and the Electrical industry. Unfortunately for the Steel Tube sector, the lacklustre performance of the domestic construction industry continued to dampen demand for Steel Tubes which continued during the period under review. As a consequence, the Steel Tube operations saw a reduction in sales to RM213.7 million from RM249.3 million previously, a drop of 14.3%. Similarly, the sales tonnage for Steel Tubes also dropped from 77,200 tonnes to 66,100 tonnes, down by 14.4%. Consequently PAT declined from RM15.4 million to RM6.2 million, a drop of RM9.2 million, reflecting a significant margin squeeze with the Group’s competitors willing to reduce margins to attain sales. Taking into cognisance the present sluggish market conditions, the Group will continue to focus on a tight inventory management policy as well as continue to adhere to stringent credit control standards, to protect the interest of the Group. 1.3 Cold Rolled Coil Operations (Mycron Steel Berhad) The Group's Cold Rolled Coil ("CRC") Steel Sheet operations are conducted through its 54.8% owned subsidiary, Mycron Steel Berhad ("Mycron"), which is listed on Bursa Malaysia. For the financial year ended 30 June 2011, Mycron achieved sales revenue of RM388.0 million compared to RM429.3 million the previous year, a drop of 9.6%. Sales volume was 156,000 tonnes compared to 181,000 tonnes the previous year, a drop of 25,000 tonnes or 13.8%. The lower sales, both in value as well as tonnage, were a result of the soft market conditions that prevailed for much of the period under review. While the first half of calendar year 2010 was a strong one in terms of demand, the market turned soft from July onwards and this continued into the first half of 2011, with customers keeping inventory levels at near zero levels and only placing orders against back-to-back sales. Concerns for a slow global economic recovery, especially in the developed nations (including China), has further dampened sentiments and has caused a slowdown in demand for steel, both domestically and internationally. Mycron recorded a PAT of RM3.5 million compared to RM30.0 million previously, reflecting narrow margins as a consequence of heavy competition caused mainly by cheaper CRC imports from China, which were exempted from Malaysian duty. During calendar year 2010, Malaysia imported 1 million tonnes of iron-ore based CRC, which is well within the quality standards Mycron is capable of manufacturing should it attain sufficient supply of iron-ore based Hot Rolled Coil ("HRC") raw material. Operating at only 62.4% of plant utilisation for the period under review, Mycron has ample capacity (about 94,000 tonnes a year) to target the import substitution of the 1 million tonnes a year of CRC currently being imported into the country. In this respect, Mycron’s strategy will be to continue to focus its efforts in manufacturing high-end iron-ore based CRC, to gain a larger customer base and plant utilisation rate. Mycron is well placed to penetrate this sector as it had invested RM120 million in upgrading its facilities in 2007. The quality of Mycron's CRC is as good, if not superior, to imported CRC and this augurs well for the Group in the long term. 1.4 Steel Reinforcement Bar Operations (Melewar Steel Mills Sdn Bhd) The Group's Steel Reinforcement Bar ("Rebar") manufacturing operations are conducted through its 100% subsidiary, Melewar Steel Mills Sdn Bhd. Due to the present domestic rebar industry scenario of narrow margins, the rebar operations of the Group continue to be mothballed for the period under review with the focus on the trading of steel products and scrap. The over-capacity situation in the domestic long steel product sector still prevails, but the expectation of the Government's Economic Transformation Programme ("ETP") bodes well for the rebar market. It is expected that demand together with margin increases, as a result of the Government’s ETP projects, will see the Group’s rebar operations being recommenced in the very near future. 1.5 Iron Ore Mining Operations (Gindalbie Metals Ltd) The Group's involvement in iron-ore mining was held through its interest in Gindalbie Metals Ltd ("Gindalbie"), which is listed in the Australian Stock Exchange. The project at Karara is being developed in a Joint Venture with AnSteel, China’s second largest steel company to deliver high grade magnetic concentrate, blast furnace quality pellets and direct shipping hematite ore. With a capital budget of A$2.5 billion and targeting a production of 2 million tonnes a year of hematite iron-ore and 8 million tonnes a year of magnetite iron-ore, the mine has a lifespan of over 30 years with the potential to increase production output to 30 million tonnes a year. The Group's initial investment in Gindalbie was made in 2004, amounting to 12.4% of Gindalbie’s share capital at that time, via a direct subscription of shares. Following subsequent rights issue, the Group's interest increased to 74 million shares, representing 27% of Gindalbie's total issued shares with an average cost of A$0.10 per share. Following the collapse of the Australian stockbroker, Opes Prime Stockbroking Ltd in 2008, and the subsequent settlement agreement reached with the stockbroker's bank, the Group was compensated with A$16.3 million for the loss of 32 million shares of Gindalbie. This effectively valued the disposal at A$0.51 per share. This disposal, coupled with subsequent share placements to AnSteel, had resulted in the Group's interest in Gindalbie being reduced to 5.9% of Gindalbie's issued share capital, representing 42.1 million shares. The Group had taken the decision to dispose of its entire interest in Gindalbie in order to reduce its borrowings and up till 30 June 2011, the Group had disposed a total of 41.0 million Gindalbie shares at an average price of A$1.05 per share. The net proceeds of RM126.1 million were utilised to reduce the Group’s bank borrowings. Subsequent to the year end, the Group has disposed the balance 1.1 million shares at an average of A$0.82 per share. With this disposal, the Group’s interest in Gindalbie has been fully divested. 2.0 ENERGY DIVISION The Group’s involvement in Energy is principally through its interest in Siam Power Generation Company Ltd. 2.1 Power Generation Operations (Siam Power Generation Company Ltd) The Group through its wholly-owned subsidiary, Mperial Power Ltd ("Mperial") has a 96.4% equity interest in Siam Power Generation Public Company Ltd ("Siam Power"). Siam Power holds a license to build, own and operate up to 450 MW of power generating plants under the Small Power Producer ("SPP") programme in Thailand. Under the SPP Programme, Siam Power is required to supply power to the Electricity Generating Authority of Thailand ("EGAT") and the industrial customers within the SPP Industrial Park concession area in the district of Baan Khai in Rayong Province. The main industrial customer in the SPP Industrial Park is G Steel's HRC Steel Sheet manufacturing facility. The current Siam Power plant is a 160 MW Combined Cycle Cogeneration Gas-fired Power Plant, situated adjacent to EGAT’s Baan Khai substation, a terminal point for one of EGAT’s main transmission line in that region. The project was initiated in 1996 and the engineering, procurement and construction of a 300 MW Combined Cycle Cogeneration Plant commenced in 1997. Subsequent to the Asian Financial Crisis in the same year, certain project lenders withdrew their support for the project, resulting in the suspension of the project works. In 2006, Mperial acquired a 70% stake in Siam Power for US$23 million. Subsequently, the Group increased its stake in Siam Power to 95% at a further cost of US$11.3 million. In September and November 2010, the Group subscribed to additional shares bringing its stake in Siam Power to 96.42% at an additional cost of US$13.4 million. The Group capitalised some of its advances to Siam Power in September and November 2010, thereby increasing its stake to 96.42%. Mperial has successfully revived the project and achieved the Commercial Operation Date ("COD") for the power plant on 29 December 2010. The Power Purchase Agreements ("PPA") with both EGAT and G Steel for the supply of 90 MW and 70 MW respectively are for a period of 25 years from COD. The project was officially launched on 11 January 2011. For the period under review, total revenue generated was RM130.0 million, with an after tax loss of RM17.3 million compared to a profit of RM18.9 million the previous year. The loss was primarily due to overhead expenses incurred in the first six (6) months, prior to commencement of operations. Another reason for the loss was the provision made by the Group for RM7.2 million for the amounts owing by one of the power off-takers in view of their weak financial standing, pending their financial restructure, which is currently under way. 3.0 ENGINEERING DIVISION The Engineering Division of the Group comprises its interest in three (3) companies, namely Melewar Integrated Engineering Sdn Bhd, Melewar MycroSmelt Technology Ltd and Ausgard Quick Assembly Systems Sdn Bhd. 3.1 Engineering (Melewar Integrated Engineering Sdn Bhd) Melewar Integrated Engineering Sdn Bhd ("MIE"), a 70% subsidiary of the Group, serves as the technical development engineer and project manager for the Group. Besides performing functions within the Group, MIE also undertakes third party jobs, actively bidding for project management and engineering works within as well as outside the country. For the financial year under review, MIE achieved revenue of RM13.3 million compared to RM11.9 million, a 11.8% improvement over the previous year. The bottom line also improved, with PAT of RM0.2 million compared to a loss of RM1.6 million previously. 3.2 Steel Smelting Technology (Melewar MycroSmelt Technology Ltd.) Melewar MycroSmelt Technology Ltd ("MMTL") promotes the Group’s scrap-smelting technology for the production of steel billets. Melewar Steel Mills Sdn Bhd currently operates the existing billet plant in Shah Alam, using the billets produced as its raw material, to manufacture rebars. MMTL is tasked with the mission to promote the technology and seek international rebar manufacturers to install this steel billet manufacturing system in their prospective plant expansion. 3.3 Building Systems (Ausgard Quick Assembly Systems Sdn Bhd) Ausgard Quick Assembly Systems Sdn Bhd ("AQAS") was incorporated to develop, manufacture and supply an alternative building system for the housing construction industry. AQAS has developed a quick assembly pre-fabricated building system using steel tubes and other components, as the back-bone of the system. Using this method, a typical home can be assembled in as fast as one week. AQAS has been tasked with the mission to seek customers for its pre-fabricated quick assembly homes in Malaysia. LONG-TERM BUSINESS OUTLOOK The Government had announced a slew of ETP projects last year worth billions of Ringgit that goes hand in hand with the Government’s aim of making Malaysia a high-income nation by 2020. While the spillover effects of the projects appear to be slow in trickling down to the general economy, the consensus is that it should eventually provide a shot in the arm for domestic demand. With this in mind, the Group remains confident of the long-term growth potential for the Malaysian steel industry. PROSPECTS FOR THE NEW FINANCIAL YEAR Although the long-term prospects for the Group is good, at present steel demand remains weak due to the concerns of the global economic environment, which remains fluid and rather uncertain. Further deterioration in the economic and financial climate in Europe will likely have significant repercussions for international trade and in doing so, will continue to affect international and domestic demand. The Gross Domestic Production ("GDP") for Malaysia’s growth for the 2nd quarter of 2011 edged lower to 4% year-on-year due to weaker domestic demand, with the manufacturing sector only achieving a 2.1% growth. Against this background, the Malaysian Institute of Economic Research ("MIER") has forecasted a 5% GDP growth for calendar year 2012. It is the Group's expectation that with the further implementation of the ETP projects and the recently announced Government Budget 2012 handouts, the demand for steel products will be further strengthened in the near future. However, to be on the prudent side, the Group will continue to remain cautious and will closely monitor the global and domestic steel and economic demand patterns to ensure the Group moves forward safely. We will continue our conservative stance on inventory management and will maintain our policy of matching HRC raw material purchases to customer direct and projected orders. CORPORATE EXERCISE To further strengthen the financial position of the Group and to raise additional working capital for the Group's operations, the Company recently announced a renounceable two-call rights issue up to 151,170,272 Right Shares at an indicative issue price of RM1.00 per Rights Share on the basis of two (2) Rights Shares for every three (3) existing MIG shares held. Details of the proposed Rights Issue are contained in the announcement which was made on 21 October 2011 by our principal adviser, OSK Investment Bank Berhad. ACKNOWLEDGEMENT On behalf of the Board, I would like to express my thanks and gratitude, as well as sincere appreciation to all members of the management team and their staff for their contribution and hard work in the past year. Although times are difficult at present, by ensuring that the Group remains the premier name for quality of its steel products, the Group's long-term success will be guaranteed in the long run. To our shareholders, I thank you for your support and patience, especially during this period of uncertainty and look forward to your continued support in the years ahead. Tunku Dato' Ya'acob bin Tunku Tan Sri Abdullah Executive Chairman