Accordingly, the division reported a Loss Before Tax of RM5.7 million, after taking into account, an inventory value impairment of RM16.2 million, compared to the Profit Before Tax of RM22.7 million in the previous financial year.

Taking cognisance of the current uncertain times, the management will continue to focus on a tight inventory management policy, by maintaining inventory at a level of 1.5 times sales volume. The management has been, and will continue to adhere to, stringent credit controls, and are confident of managing trade debtors, at the current level, of 50 days of sales, which is one of the lowest in the industry.

The Group made an initial investment in Gindalbie in 2004, via a direct subscription for shares, amounting to 12.4% of the company’s share capital. Following subsequent rights issues, which saw the Group interest increase to 27%, and subsequent share placements, in particular to Anshan Steel, the group’s interest was reduced to 11%. After the effects of the Open Prime saga, which is further explained below, the net interest of the Group in Gindalbie, is now 6.0%.

Toward the end of 2007, the Group took a loan of A$11.2 million from Opes Prime Stockbroking Ltd (“Opes Prime”), secured by part of its shareholding in Gindalbie. Unfortunately, Opes Prime went into receivership in early 2008, and all but 3.1 million of the pledged Gindalbie shares, were disposed by one of its creditor banks. As already announced, the Group pursued legal action against the said bank, in Australia, for the return of the shares.

The Group has recently ceased the said legal action, pursuant to a scheme of settlement proposed by the said bank, and which was accepted by 91.2% of Opes Prime creditors, and approved by the Australian Federal Court. The estimated settlement payout of A$0.37 to the dollar, translates to a sum of A$5.1 million payment, out of the Group’s claim against Opes Prime of A$13.7 million. This A$5.1 million settlement, is net of the initial loan of A$11.2 million, which is now considered
fully settled.

The said settlement sum, plus the balance of unsold pledged 3.1 million Gindalbie shares, is expected to be received by December 2009.

The Group’s reduced net interest of 6.0% in the paid up capital of Gindalbie, representing 42 million shares, is subject to quarterly revaluation, to reflect the movement in its traded share price. The share price currently trades at A$0.93 per share, from its high of A$1.80 per share in 2008, and its low of A$0.40 per share in mid 2009.
 

EGAT, which is the principal off-taker, has executed the Power Purchase Agreement (“PPA”) for 90 MW of power, for a period of 25 years, upon commercial operation of the plant, with fluctuation in foreign exchange and energy cost passthrough clauses incorporated therein. Another 70 MW is sold to a major steel player located next to the plant, under a similarly structured Energy Services Agreement. The steam generated in the power generation process, will be sold to a domestic consumer under a long term Steam Sales Agreement.

In June 2009, SIPCO was awarded with a second PPA, to supply another 90 MW to EGAT, under its SPP2 programme, with target commercial operation set for June 2013. The new plant will also be a combined-cycle gas fired power plant and will be constructed on the same site.

Although the power generation sector has not contributed profits to the Group yet, SIPCO remains an attractive investment, with a potentially strong and steady future earnings base.

The Engineering Division also undertakes third party works, and actively participates in tenders for various project management and engineering works within and outside the country.

For the period under review, MIE achieved a Revenue of RM9.2 million (FY 2008: RM37.4 million) and Profit Before Tax of RM1.8 million (FY 2008: RM2.4 million).

Melewar Mycrosmelt Technology Ltd (“MMTL”) was incorporated to market the Group’s scrap-smelting technology for the production of steel billets. The Group’s existing billet plant, in Shah Alam, is operated by Melewar Steel Mills Sdn Bhd.

MMTL is now actively looking into licensing the use of this technology outside the country and presently, is undertaking a feasibility study to build a similar facility in Bahrain.

The global financial crisis will continue to pose a challenge to all business corporations in terms of revenue and earnings. Although the situation appears to have stabilised, with some economies showing signs of recovery, the global economy will, nevertheless, remain fragile.

General consensus, however, is that the world will emerge from the recession, with a moderate growth projected for 2010. Oil and commodity prices appeared to have bottomed out, and are showing signs of strengthening.

Likewise, iron ore and steel prices have stabilised and whist they remain slightly volatile in the short term, the prospects of prices heading upwards in the longer term is good. Steel mills in Japan, China and Korea which cut back on production at the height of the steel industry slump, have begun to slowly increase production. If properly managed, this action should bode well for the industry.

In Malaysia, steel consumption generally, has improved slightly in recent weeks, with some signs of increased demand, partly attributed to down-stream manufacturers and traders, having to replenish their stocks, and partly in anticipation of increased steel prices. Whether this will herald a continued increase in sales, is left to be seen.

While Bank Negara Malaysia (“BNM”) has forecasted a -1.0% to +1.0% GDP growth for the country, for 2009, the Malaysian Institute of Economic Research (“MIER”) has taken a more conservative stance, with a forecasted GDP contraction of -3.3% for this year. On a more positive note, MIER forecasts a +3.7% GDP growth for 2010.

The Steel Tube Division, which is dependent on the construction sector, will continue to face a challenging time, for the 2010 financial year. However, should the implementation of the stimulus programme by the Government, be expediently administered, a recovery for the division should be forthcoming.

The CRC Division, although not directly affected by the contraction in the construction sector, will nonetheless, be affected by a slow global economic recovery. Fortunately for this division, its inroads in the supply of higher grade CRC, to both the automobile and roofing sectors, as a result of their plant upgrade and collaboration with JFE of Japan, bodes well for the division. Barring any further adverse economic development, this division should perform well in the new financial period.

The Power, Oil and Gas Division is the least affected by the economic downturn as their main revenue, which is largely derived from power off-take agreements, and FPSO/FSO charter contracts, will remain constant and steady, due to the long term nature of their contracts.

The Engineering Division, like the Steel Divisions, will continue to face challenges ahead, as its performance is highly dependent on its bids for projects. However, if the various projects, under the Ninth (9th) Malaysia Plan, and the economic stimulus programme, are implemented as planned, this division should be able to benefit and contribute positively, to the Group’s future results.

Overall, the Group views the forthcoming financial year, to be significantly better than the last, and is focusing its efforts in stream-lining its operations, both in terms of resource allocation, and in improving operating efficiencies, to better take advantage of the improving economic environment.

On behalf of the Board of Directors, I would like to express our appreciation to all members of the management team and their staff, for their loyalty and perseverance in the past year. I would also like to thank all our shareholders, customers, suppliers and business partners for their continuing support.

With your support, we should see the Group, steering itself back to success, in the near future.