(company number 640357-x) - · pdf filehong leong bank berhad ... he has almost 25 years...

A n n u a l R e p o r t

(Company Number 640357-X)

180, Kawasan Industri Ayer Keroh Ayer Keroh, 75450 Melaka Malaysia

Tel : 06 231 9990 Fax : 06 231 5310 Email : [email protected]


20062006

Corporate Information 2

Group Structure 3

Profile Of Directors 4

Statement From The Group Managing Director 7

Corporate Governance Statements 9

Internal Control Statement 18

Audit Committee Report 20

Directors' Responsibilities Statement 24

Financial Statements

. . Directors' Report 25

. . Report Of The Auditors 29

. . Income Statements 30

. . Balance Sheets 31

. . Statements Of Changes In Equity 33

. . Cash Flow Statements 35

. . Notes To The Financial Statements 37

. . Statement By Directors & Declaration 61

Analysis Of Shareholdings 62

List Of Properties 64

Notice Of Third Annual General Meeting 65

Statement Accompanying 69 Notice Of Annual General Meeting

Form Of Proxy Enclosed

TableofContents

ANNUAL REPORT 2006 - ORNASTEEL HOLDINGS BERHAD

�CORPORATEINFORMATION

BOARDOFDIRECTORS

Group Managing Director

Dr.Chung,Yeong-Huei

Executive Directors

Chang,Shu-AunTanChinTeng

Non-Independent Non-Executive Directors

Huang,Tsong-YingBrig.Gen.(R)Dato’MohdZaaba@NikZaabaBinNikDaud

Independent Non-Executive Directors

PangFeeYoonChongKhimLeong@ChongKimLeong

AUDITCOMMITTEE

PangFeeYoon (Chairman)ChongKhimLeong@ChongKimLeong(Member) Chang,Shu-Aun (Member)

COMPANYSECRETARIES

WongWeiFong (MAICSA 7006751)LamSookChing (MAICSA 7006942)

AUDITORS

Deloitte&Touche (Audit Firm No. 0834)Level 19 Uptown 1, No. 1 Jalan SS21/58Damansara Uptown, 47400 Petaling JayaSelangor Darul Ehsan

SOLICITORS

Messrs.KohKimLeng&Co.No. 5-1 Lorong Hang Jebat75200 Melaka

PRINCIPALBANKERS

Malayan Banking BerhadHong Leong Bank BerhadRHB Bank BerhadUnited Overseas Bank (Malaysia) Berhad

REGISTEREDOFFICE

No. 49-B Jalan Melaka Raya 8Taman Melaka Raya, 75000 MelakaTel: 06 – 281 5300Fax: 06 – 281 5332

BUSINESSADDRESS

180 Kawasan Industri Ayer KerohAyer Keroh, 75450 Melaka

REGISTRARS

PFARegistrationServicesSdnBhd (19234-W)Level 13 Uptown 1, No. 1 Jalan SS21/58Damansara Uptown, 47400 Petaling JayaSelangor Darul EhsanTel: 03 - 7725 4888Fax: 03 -7722 2311

STOCKEXCHANGELISTING

Main Board – Industrial ProductsBursa Malaysia Securities Berhad

Stock Name: OnastelStock Code: 5094

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OHB is an investment holding company providing management services to its subsidiaries. The principal activities of its subsidiaries are as follows:

Ornasteel Manufacturing and marketing of cold rolled steel products GroupSteel Manufacturing and marketing of hot dipped galvanised steel, commonly known as GI steel, and

prepainted galvanised steel, commonly known as PPGI steel or colour coated steel. Ornaconstruction Dormant company

GROUPSTRUCTURE


�PROFILEOFDIRECTORS

DR.CHUNG,YEONG-HUEIGroup Managing DirectorTaiwanese, Age 53

Dr. Chung, Yeong-Huei was appointed to the OHB Board on 16 January 2006 as the Group Managing Director. He has a Ph.D. in Chemical Engineering from the Worcester Polytechnic Institute in Massachusetts, USA and a degree in Chemical Engineering from the National Taiwan University, Taiwan.

He has almost 25 years experience in the steel manufacturing industry of which, for the past 10 years, he was part of the senior management of a steel manufacturing company.

Dr. Chung, Yeong-Huei attended all 5 of the Board meetings which were held in the financial year ended 31 December 2006.

Type of training that he has attended during the financial year end is as follows: - “Mandatory Accredited Programme” organised by Bursatra Sdn. Bhd.

HUANG,TSONG-YINGNon-Independent Non-Executive DirectorTaiwanese, Age 55

Huang, Tsong-Ying was appointed to the OHB Board on 5 October 2004 and is currently the Non-Independent Non-Executive Director. He graduated from the National Cheng-Chi University, Taiwan with a degree in Business Administration.

He has chalked almost 30 years experience in the steel manufacturing industry of which, for the past 15 years, he was part of the senior management team. He was the President of China Steel Global Trading Corporation, Taiwan, a steel trading company, prior to his appointment to the Board of OHB.

Huang, Tsong-Ying attended 3 of the 5 Board meetings which were held in the financial year ended 31 December 2006.

Mr. Huang has not attended any training during the financial year due to time constraints and a tight work schedule.

CHANG,SHU-AUNExecutive DirectorMember of Audit CommitteeTaiwanese, Age 59

Chang, Shu-Aun was appointed to the OHB Board on 5 October 2004 as an Executive Director. He holds a Bachelor of Science from the Chung Yuan Christian University, Taiwan.

He has about 30 years experience in the steel manufacturing industry and prior to his appointment as the Executive Director of the Group, he was the General Manager of the Industrial Engineering Department of China Steel Corporation, Taiwan.

Chang, Shu-Aun attended all 5 of the Board meetings which were held in the financial year ended 31 December 2006.

The type of training that he has attended during the financial year end is as follows: - “Risk Awareness Workshop” conducted by Ernst & Young Malaysia.

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TANCHINTENGExecutive DirectorMalaysian, Age 48

Tan Chin Teng was appointed to the OHB Board on 5 October 2004 as an Executive Director. He holds a Master of Business Administration from the Cambridge Management Institute, United Kingdom.

He has over 20 years of financial and accounting experience and since the past 18 years, he has been in a managerial capacity overseeing to financial matters.

Tan Chin Teng attended all 5 of the Board meetings which were held in the financial year ended 31 December 2006.

The type of training that he has attended during the financial year end is as follows: - “Conversion to Revised and New Financial Reporting Standards – Impact to Malaysian Companies” conducted

by Ernst & Young Malaysia. - Technical Seminar on 1st Interim Financial Reporting conducted by Ernst & Young Malaysia.- “Risk Awareness Workshop” conducted by Ernst & Young Malaysia.- “Tax Management Seminar” conducted by Deloitte KassimChan.

PANGFEEYOONIndependent Non-Executive DirectorChairman of Audit CommitteeMalaysian, Age 42

Pang Fee Yoon was appointed to the OHB Board on 5 October 2004 as an Independent Non-Executive Director. He is a member of the Malaysian Institute of Certified Public Accountants, Malaysian Institute of Accountants (“MIA”), Malaysian Institute of Taxation (“MIT”) and the Financial Planning Association of Malaysia.

He has almost 20 years in the public practice and is presently the principal partner of Pang Fee Yoon & Co., an accounting practice established in 1994 which is internationally affiliated with Inpact International.

Pang Fee Yoon attended 4 of the 5 Board meetings which were held in the financial year ended 31 December 2006.

Type of training that he has attended during the financial year end is as follows: - “MIT Seminar – Section 153, the New Tax Agent Guidelines” organised by MIT- “MIT Seminar – Tax Cases & Critical Issues” organised by MIT- “Hasil Tax Seminar 2006” organised by the Inland Revenue Board, Malaysia - “International Accountants Conference” organised by the Inpact International Group- “Understanding How Bank Considers Haircut on Difficult Loans” organised by MIA

CHONGKHIMLEONG@CHONGKIMLEONGIndependent Non-Executive DirectorMember of Audit CommitteeMalaysian, Age 50

Chong Khim Leong @ Chong Kim Leong was appointed to the OHB Board on 5 October 2004 as an Independent Non-Executive Director. He holds a Degree of Master of Laws from Dalhousie University, Canada and a Degree of Utter Barrister from Lincoln’s Inn, London. He was called to the Bar of England & Wales in 1978 and to the Malaysian Bar in 1980.

He has been in practice as an advocate and solicitor for over 25 years. He is presently the Managing Partner of Koh Kim Leng & Co., Advocates & Solicitors.

PROFILEOFDIRECTORS( cont’d )


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Mr. Chong is a director of Magnum 4D (Melaka) Sdn. Bhd., a subsidiary of Magnum 4D Berhad.

Chong Khim Leong @ Chong Kim Leong attended all 5 of the Board meetings which were held in the financial year ended 31 December 2006.

Type of training that he has attended during the financial year end is as follows: - “Risk Awareness Workshop” conducted by Ernst & Young Malaysia.

BRIG.GEN.(R)DATO’MOHDZAABA@NIKZAABABINNIKDAUDNon-Independent Non-Executive DirectorMalaysian, Age 59

Brig. Gen. (R) Dato’ Mohd Zaaba @ Nik Zaaba Bin Nik Daud was appointed to the OHB Board on 23 August 2006 as a Non-Independent Non-Executive Director. He graduated from the Universiti Kebangsaan Malaysia, Malaysia with a degree in Strategic and Defence Security Studies.

His career with the Malaysian Armed Forces spanned 37 years. Senior posts held by him prior to his retirement from the Armed Forces in May 2004 were 1st Infantry Brigade Commander, Armed Forces Provost Marshall and Army Inspector General with the rank of Brigadier General.

There was only 1 Board meeting held subsequent to his appointment to the OHB Board which Brig. Gen. (R) Dato’ Mohd Zaaba @ Nik Zaaba Bin Nik Daud duly attended.

Type of training that he has attended during the financial year end is as follows: - “Mandatory Accredited Programme” organised by Bursatra Sdn. Bhd.

Notes:

1. Directorship in Public Companies. Save for Mr. Chong Kim Leong who is a director of a subsidiary of a public company listed on the Bursa

Malaysia Securities Berhad (“Bursa Securities”), none of the other Directors hold any directorship in any public companies.

2. Family Relationship None of the Directors are related to each other nor has any family relationship with the substantial shareholder

of the Company. They do not have any personal interest in any business arrangement involving the Company.

3. Directors’ Shareholdings Details of Directors’ shareholdings in the Company can be found in the Analysis of Shareholdings section on

page 63 of this Annual Report.

4. Non-Conviction of Offences None of the Directors has been convicted of any offences, other than traffic offences, within the past 10 years.

5. No Conflict of Interest None of the Directors has any conflict of interest with the Company.

PROFILEOFDIRECTORS( cont’d )

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STATEMENTFROMTHEGROUPMANAGINGDIRECTOR

BOARDCHANGES

During the year, besides myself who took over as Group Managing Director on 16 January 2006, Brig. Gen. (R) Dato’ Mohd Zaaba @ Nik Zaaba Bin Nik Daud was appointed to the Board of OHB on 23 August 2006 as a Non-Independent Non-Executive Director. His profile is found on page 6 of this Annual Report.

CORPORATEDEVELOPMENTS

The Group’s expansion project of increasing its capacity for the production of Cold Rolled Steel (CRC) by 180,000 metric tons per annum has just been commissioned. The mill started commercial production of CRC in April 2007. This mill is expected to contribute positively to the Group’s revenue and profit for the financial year 2007.

The Group has commenced the upgrading of the hot dipped galvanising line to produce galvanised steel for the home appliances and is also studying the possibility of upgrading the hot dipped galvanising line to produce anti-finger galvanised steel for the electrical and electronics industries.

FINANCIALREVIEW

2006 has been a profitable year for OHB, thanks to the remarkable team spirit of the Group, strong support of ultimate holding company (China Steel Corporation) and favourable market conditions. We made a profit after tax of about RM71.966 million on the back of revenue of about RM1.025 billion. The basic earnings per share is 18.97 sen, which is quite a leading figure in this sector of the steel industry.

Compared with the financial results of the previous year, Group revenue has dropped by RM215.8 million due to a shorter financial year (i.e. a 12 month period for financial year 2006 compared with a 13 month period for financial year 2005) and to the lower selling prices of our steel products in 2006.

Group profit after tax is lower at RM71.966 million registering a drop of RM7.725 million which are due to the aforementioned factors as well as the adoption of Financial Reporting Standard FRS 3, whereby Negative Goodwill which was previously accreted to the income statement over a 5 year period is now derecognized and the negative goodwill brought forward as of 1 January 2006 amounted to RM77,253,855 was adjusted to the opening retained earnings.

On behalf of the Board of Directors

of OHB (the “Board”), I am pleased

to present the Annual Report and the

audited financial statements of the

Group for the financial year ended

31 December 2006.


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BUSINESSOUTLOOK

The perspective for year 2007 is expected to be better than year 2006. With the forecasted Malaysia GDP growth rate of 6.0% for 2007 and the favourable background worldwide especially the Asian economical outlook, Malaysia’s steel consumption is expected to rise by 10% annually for years 2007 and 2008 driven by the Government’s 9th Malaysia Plan to boost spending on infrastructure. We believe this positive development will render the Group for further growth. Furthermore, the recent announcement of China’s decision to drastically reduce or revoke the export tax rebate for most of its steel products will certainly promote the price level stability in the Asian market.

With the challenges ahead, we must position ourselves to be well prepared to capture the business opportunities of continuous growth. To further strengthen the Group position as a leading producer of high quality CRC, the Group’s new 4 feet cold rolling mill has gone into commercial production in April 2007 and the focus would be on the production of high drawing quality CRC and thin gauge CRC (thickness of 0.18 to 0.30 mm) which are currently being imported into the country. We will enlarge our market share in the component, appliance and car-making sectors.

Our Enterprise Resource Planning (ERP) system has been implemented and has greatly improved operational efficiency. We will execute the revamping project to upgrade the product quality of our galvanizing line. The surface quality of our galvanised steel will be further improved to meet the stringent requirements of the home appliances and the electrical and electronic industries.

Considering the world trade is shifting towards liberalisation, we foresee that the steel industry would follow suit in the near future. With the challenging task ahead, we need to address the importance of various fronts such as technological advancement, market penetration, efficient production and strategic planning. We will dedicate ourselves to face competition from other steel players, domestic and foreign alike, and to thrive in the vibrant business environment.

DIVIDEND

The Board has recommended a final dividend of 10% less 27% tax for the financial year ended 31 December 2006. The proposed dividend will be tabled for the approval of the shareholders at the forthcoming Third Annual General Meeting (“AGM”) of the Company.

ACKNOWLEDGEMENTANDAPPRECIATION

The support and confidence shown by the Group’s shareholders, valued customers, bankers, suppliers and business associates is much appreciated. It has been a good year and the Board acknowledges the dedication of its Management team and the hard work, commitment and loyalty of the OHB Group staff force.

As the Group faces a challenging year 2007, the Board looks forward to a continued good working relationship with their customers, business associates, shareholders and their invaluable employees.

In closing, I take this opportunity to thank my fellow Board members, past and present, for their contributions to the Company and the Group. I also take this opportunity to record my appreciation to the Government of Malaysia and the various regulatory authorities for their support and assistance.

DR.CHUNG,YEONG-HUEIGroup Managing Director24 May 2007

STATEMENTFROMTHEGROUPMANAGINGDIRECTOR( cont’d )

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CORPORATEGOVERNANCESTATEMENTS

The Board and Management of OHB recognises the importance of good corporate governance in running the operations of the Group and in all its dealings and are mindful of the trust and expectations placed upon them by shareholders and stakeholders. In fulfilling their fiduciary duties, the principles of transparency, integrity and professionalism are incorporated into all levels of the Group’s corporate hierarchy. It is hoped that through this common value system, shareholder value will be safeguarded and performance of the Group further enhanced.

Corporate governance principles are adopted in activities undertaken by the Group and the Board has initiated moves throughout the Group to comply with the best practices of principles of good corporate governance as set out in the Malaysian Code of Corporate Governance (the “Code”) and the Listing Requirements of Bursa Securities.

The Board is pleased to report to the shareholders on the manner of application of these principles contained in the Code and the extent of compliance with the best practises set out therein during the financial year.

1. DIRECTORS

1.1 BoardofDirectors

The Board is entrusted with and is fully responsible for the Group’s overall strategy, growth and direction including its financial performance.

The Board provides direction and guidance and has effective control of the Group. It maintains full control of the Group’s activities through its matrix of authority filtering down to the various components of the Group.

The Group Managing Director is responsible for ensuring the Board’s effectiveness in conducting its business and in fulfilling its responsibilities to stakeholders. He oversees to the day-to-day operations and the implementation of the Board’s corporate and operational policies and strategies. In line with pre-determined authority levels, certain issues such as approval of interim and annual results, significant acquisitions and disposals, long term planning and major capital expenditure are collectively decided on by the Board.

Certain responsibilities are delegated to the Audit Committee which operates within clearly defined parameters as set out in the Committee’s Terms of Reference, details of which are set out on pages 20 to 22 of this Annual Report. This is to ensure an added degree of independence and objectivity on matters within the ambit of the Audit Committee.

The Board has not set up a Nomination Committee nor a Remuneration Committee preferring to carry out the functions associated thereto on a collective basis as elaborated further below.

1.2 BoardBalance

The Board comprises of members of different backgrounds, each of whom has a different set of experience and management skills vital for the effective running of the OHB Group through the pooling together of their invaluable knowledge and resources.

As at the date of this Statement, there are 7 directors on the Board of OHB of whom 2 are Independent Non-Executive Directors, 2 are Non-Independent Non-Executive Directors and the rest, Executive Directors. The profile of each Director is set out on pages 4 to 6 of this Annual Report.

The Group Managing Director together with the Executive Directors are responsible for the implementation of policies and decisions of the Board. Together they, assisted and supported by a strong Management team, manage the day-to-day operations and oversee to the overall development and implementation of the Group’s business and corporate strategies.

The Non-Executive Directors, besides functioning as a check and balance, brings an element of objectivity to the Board and provides the Board with a diverse set of experience, expertise and independent judgement to better manage and run the Group.

All Board decisions are unanimously arrived at after discussion and consultation and no individual director or group of directors has any undue influence or dominance on the Board’s decision making process which is done collectively.


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1.3 BoardMeetings

The Board meets on a quarterly basis upon finalisation of the results of each financial quarter to facilitate the review and approval of that quarter’s financial results. Additional ad-hoc meetings are called as and when needed.

The Chairman of the Audit Committee would report to the Directors at Board meetings on salient issues that have been raised at the Audit Committee meetings and he would highlight to the Directors, the areas of emphasis as may be expressed by the Audit Committee. Dr. Chung, Yeong-Huei, the Group Managing Director, chairs the Board meetings.

During the financial year ended 31 December 2006, a total of 5 Board meetings were held and the attendance of Directors thereat is set out below:-

Directors Attendance

Dr. Chung, Yeong-Huei 5 of 5(appointed on 16 January 2006)Huang, Tsong-Ying 3 of 5Chang, Shu-Aun 5 of 5Tan Chin Teng 5 of 5Pang Fee Yoon 4 of 5Chong Khim Leong @ Chong Kim Leong 5 of 5Brig. Gen. (R) Dato’ Mohd Zaaba @ Nik Zaaba Bin Nik Daud 1 of 1(appointed on 23 August 2006)

1.4 AccesstoandSupplyofInformationtotheBoard

Prior to the convening of a Board meeting, the notice and agenda for that Board meeting is transmitted to each Board member to be followed by a full set of Board Papers for their perusal. The Board Papers set out information pertinent to the matters to be deliberated during the meeting and any other details or clarifications needed by the Directors on Board meeting agenda items would be furnished upon request. In a potential conflict of interest situation, the Director concerned would be required to declare his interest and abstain from the decision making.

The Company Secretaries attends all Board meetings as well as Audit Committee meetings. The proceedings at all Board meetings together with decisions taken by way of resolutions passed are minuted by the Secretaries. These minutes are tabled for the confirmation of the Directors at the subsequent Board meeting and signed by the Chairman presiding at such subsequent Board meeting. They are then kept at the registered office of the Company.

Members of the Board have complete and unimpeded access to the services and advice of the Company Secretaries. The Company Secretaries are tasked with ensuring that Board proceedings are properly adhered to during meetings and that all statutory obligations such as compliance with the Listing Requirements of Bursa Securities, the Companies Act 1965 as well as any other regulatory requirements as may be applicable to the Company, are duly complied with. They would advise the Board on matters relating to corporate governance issues, directors’ responsibilities in compliance with the relevant legislation and regulations and regularly keep them updated on new statutory and regulatory requirements relating to the discharge of duties and responsibilities of directors.

Each Board member also have direct and unrestricted access to senior management for information relating to the affairs of the Company and they have the liberty to seek external professional advice at the expense of the Company if they so require.

1.5 AppointmentsandRe-ElectionstotheBoard

Matters relating to the appointment of directors are dealt with by the entire Board collectively. The Company has not set up a Nomination Committee as the Directors are of the opinion that given the current size and composition of the Board, the nomination of directors is more effectively dealt with by the entire Board. In considering appointments of new directors, the Board takes into consideration the mix of skills and expertise, experience and potential contributions of the potential incoming director.

CORPORATEGOVERNANCESTATEMENTS( cont’d )

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The Articles of Association of the Company provide that all directors including the managing director shall retire from office at least once every 3 years and all retiring directors shall be eligible for re-election at the AGM in which they retire. A retiring director shall remain in office until the close of the meeting at which he retires.

The Articles further provide that directors who are appointed by the Board during the financial period before an AGM are subject to retirement and shall be eligible for re-election by the shareholders at the next AGM of the Company to be held following their appointments.

Details of the Directors seeking for re-election at the Third AGM are disclosed in the Statement Accompanying Notice of AGM on page 69 of this Annual Report.

1.6 Directors’Training

Dr. Chung, Yeong-Huei and Brig. Gen. (R) Dato’ Mohd Zaaba @ Nik Zaaba Bin Nik Daud, who were both appointed to the Board during the financial year, has each undergone the Mandatory Accredited Programme conducted by Bursatra Sdn. Bhd.

While the Board has not set in place formal training programmes for the Directors, each of them are aware of the need to undergo appropriate continuous training to broaden their perspectives and to keep abreast of latest developments in the market place and with new statutory and regulatory requirements.

Training that the Directors have attended during the financial year is set out on pages 4 to 6 of this Annual Report.

1.7 Directors’Remuneration

The Company has not established a Remuneration Committee. There are 3 Directors holding executive positions and drawing salaries from the Group. The remuneration packages for the Executive Directors of the Company are dictated by market competitiveness and are tailored to retain and motivate directors of the quality required to manage the business of the OHB Group and to align the interests of the Directors with those of the shareholders. The contribution, responsibilities and performance of each Executive Director are taken into consideration in determining their respective remuneration packages.

The remuneration packages of the Executive Directors for the financial year ended 31 December 2006 are as follows:

Salaries& Other Benefits-Category Fees Bonuses Emoluments in-Kind Total RM RM RM RM RM

Executive Directors – 447,856 26,987 66,807 541,650Non-Executive Directors 61,874 – – – 61,874

Total 61,874 447,856 26,987 66,807 603,524

Directors whose total remuneration fall within the following bands are as follows:-

RangeofRemuneration Executive NonExecutive

Below RM50,001 – 4RM150,001 to RM200,000 3 –



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2. SHAREHOLDERS

2.1 Shareholders’CommunicationandInvestorRelation

The Company places importance on having an effective channel of communication between the Board, the shareholders and stakeholders and the general public. Annual reports, announcements of quarterly results, circulars to shareholders (where applicable) and announcements pertaining to corporate and other developments in the Group serve as the primary means of dissemination of information. This is done in a timely manner to ensure that both the Group’s stakeholders and shareholders are kept informed on the progress and development of the Group.

2.2 AnnualGeneralMeeting(“AGM”)andExtraordinaryGeneralMeeting(“EGM”)

The principal forum for shareholders to interact and have dialogue with the Board is at the AGM of the Company. The notice of AGM and the annual report are sent to shareholders at least 21 days before the date of the AGM. Any special business items which have been included in the agenda for the AGM would be accompanied by an explanatory statement in order for the shareholders to have a better understanding, evaluation and decision on the issues involved.

For certain business or corporate proposals where shareholders’ approval is required, circulars to shareholders are sent within the prescribed time frames in compliance with regulatory and statutory provisions. These circulars provide the necessary details and are sufficiently comprehensive to enable shareholders to arrive at an informed decision on the proposals to be tabled at the AGM/EGM.

During the AGM/EGM, shareholders have the opportunity to seek clarification pertaining to the Group or to request for information regarding operations, business activities, developments and direction of the Group. Any queries raised would be attended to by the Board and members of senior management would be at hand to provide the necessary information.

3. ACCOUNTABILITYANDAUDIT

3.1 FinancialReporting

It is the Board’s commitment to provide a balanced, clear and meaningful assessment of the financial position and prospects of OHB and the OHB Group in all disclosures made to the shareholders, investors and the regulatory authorities.

The Directors in presenting the annual financial statements are duty bound to present a fair and accurate assessment of the Group’s financial position and prospects to the shareholders. The Audit Committee plays a crucial role in assisting the Board to scrutinise information for disclosure to shareholders to ensure accuracy, adequacy, completeness and timeliness.

The Board is responsible for the preparation of the financial statements of the Company and ensuring that they are drawn up in accordance with the provisions of the Companies Act, 1965 and approved accounting standards applicable in Malaysia. The Statement of Responsibility by Directors in respect of the preparations of the annual audited financial statements of OHB and the OHB Group is set out on page 24 of this Annual Report.

3.2 InternalControlandRiskManagement

The Board has overall responsibility for maintaining a sound system of internal controls that provides reasonable assurance of effective and efficient operations, compliance with laws and regulations as well as internal procedures and guidelines.

The internal controls in place are designed to safeguard the Group’s assets and thus, shareholders’ investments. A key component in carrying out this responsibility is ensuring that risks are appropriately and adequately managed within the Group. However, it must be noted that such controls by their nature can only provide reasonable assurance but are not absolute assurance against the risk of material errors, frauds or losses occurring.

An overview of the state of internal controls within the Group is set out in the Internal Control Statement on pages 18 to 19 of this Annual Report.


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3.3 RelationswiththeAuditors

The Board maintains a formal, professional and transparent relationship with both the internal and external auditors of the Group. The auditors have direct reporting access to the Board and to the Audit Committee thus ensuring that issues highlighted are treated objectively and are free from any potential management influence.

The Audit Committee has the liberty to meet with the external auditors as and when it deems necessary. The responsibility of the Audit Committee in relation to both the internal and external auditors are described on pages 20 to 23 of this Annual Report.

3.4 StatementofCompliancewithBestPracticesoftheCode

The Group is committed to achieve high standards of corporate governance in all aspects and to the highest level of integrity and ethics in all its business dealings.

The Board considers that it has complied with the Best Practices of the Code throughout the financial year ended 31 December 2006 save for the setting up of the Nomination and Remuneration Committees.

4. ADDITIONALCOMPLIANCEINFORMATION

4.1 UtilisationofProceeds

No proceeds were raised by the Company from any corporate proposals.

4.2 SharesBuy-Back

At the Second AGM of the Company held on 18 May 2006, the Company had obtained approval from its shareholders for the purchase of its own shares and as the approval would expire at the conclusion of the Third AGM, the Company would be seeking the approval of shareholders at the said forthcoming Third AGM to renewal this authority.

From 3 July 2006, date of the first share buy-back, till 3 May 2007, the Company has bought-back a total of 3,567,500 of its ordinary shares of RM1.00 each (“OHB shares”) for a total cost of RM3,519,870.70.

The monthly breakdown of OHB Shares bought-back during the financial year ended 31 December 2006 are as follows:-

No.of OHBshares boughtback BuyBackPriceper AveragecostMonthly andretainedas OHBShare(RM) perOHBShare TotalCostBreakdown TreasuryShares Lowest Highest (RM) (RM)

July 2006 817,800 0.820 0.870 0.845 695,336.76August 2006 256,100 0.825 0.900 0.863 220,418.28September 2006 205,700 0.855 0.890 0.873 180,568.67October 2006 497,400 0.875 0.905 0.89 445,059.13November 2006 116,700 0.985 1.070 1.028 119,734.61December 2006 134,000 1.010 1.060 1.035 139,754.04

Total 2,027,700 1,800,871.49

All OHB Shares bought-back are held as treasury shares in accordance with Section 67A of the Companies Act, 1965 and none of the treasury shares held were resold or cancelled during the financial year.

4.3 Options,WarrantsorConvertibleSecurities

The Company has not issued any options, warrants or convertible securities during the financial year.

4.4 AmericanDepositoryReceipt(“ADR”)orGlobalDepositoryReceipt(“GDR”)

The Company has not sponsored any ADR or GDR programme during the financial year.



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4.5 Sanctionsand/orPenalties

There were no sanctions and/or penalties imposed on the Company, its subsidiaries, the Directors and the Management by the relevant regulatory bodies during the financial year.

4.6 Non-AuditFees

There were no non-audit fees paid or payable to the external auditors by the Group for the financial year.

4.7 VariationinResults

There was no profit forecast issued by the Company and its subsidiary companies during the financial year.

4.8 ProfitGuarantee

There were no profit guarantees given by the Company and its subsidiary companies during the financial year.

4.9 MaterialContracts

There were no material contracts (not being contracts entered into in the ordinary course of business) entered into by the Company and its subsidiary companies involving the interests of directors and substantial shareholders which subsisted at the end of the financial year or entered into since the end of the previous financial year.

4.10 RevaluationPolicyonLandedProperties

The Group does not revalue its landed properties classified as Property and Equipment unless the need arises.

The existing policy of showing the assets at cost less accumulated depreciation and accumulated impairment losses as disclosed in Note 3 to the financial statements is a generally accepted accounting practise as well as a cost-saving measure.

4.11 RecurrentRelatedPartyTransactions(“RRPT”)

At the Second AGM of the Company held on 18 May 2006, the Company had obtained a mandate from its shareholders to allow the OHB Group to enter into RRPT of a revenue or trading nature.

Details of the RRPT of a revenue or trading nature conducted during the financial year ended 31 December 2006 pursuant to the said shareholders’ mandate are as follows:-

(I) Ornasteel

InterestedDirectors, Valueof MajorShareholdersand TransactionsRelatedParty NatureofTransaction PersonsConnected (RM’000)

China Steel Purchase of raw materials, Interested Shareholder 250,643Corporation spare parts, rollers and CSAP(a)(i)(“CSC”) chemicals from CSC Interested Directors 99 Payment of technical fees CYH(b), HTY(b), CSA(b), to CSC*(1) CTH(c)(i), CYC(c)(ii), CLM(c)(iii) and WLI(g)

China Steel Purchase of machinery, Interested Shareholder 4,119Global Trading spare parts, rollers and CSAP(a)(ii)Corporation chemicals from CSGT(“CSGT”) Interested Directors HTY(b), HTY(b), CSA(b), CTH(c)(i),(d), CYC(c)(ii),(e), CLM(c)(iii) and WLI(g)


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China Steel Purchase of machinery Interested Shareholder 475Machinery from CSMC CSAP(a)(iii)Corporation (“CSMC”) Interested Directors CYH(b), HTY(b), CSA(b), CTH(c)(i), CYC(c)(ii),(e), CLM(c)(iii) and WLI(g)

InfoChamp Purchase of Enterprise Interested Shareholder 2,221Systems Resource Planning System CSAP(a)(iv)Corporation from ISC(“ISC”) Interested Directors CYH(b), HTY(b), CSA(b), CTH(c)(i), CYC(c)(ii),(e), CLM(c)(iii) and WLI(g)

Chung Hung Purchase of raw materials Interested Shareholder 110,500Steel from CHSC CSAP(a)(v)Corporation (“CHSC”) Interested Directors CYH(b), HTY(b), CSA(b), CTH(c)(i),(d), CYC(c)(ii), CLM(c)(iii) and WLI(g)

CSGT Payment of sales Interested Shareholder 10(Singapore) commission to CSGTS CSAP(a)(vi)Pte. Ltd. (“CSGTS”) Interested Directors CYH(b), HTY(b),(f), CSA(b), CTH(c)(i), CYC(c)(ii), CLM(c)(iii) and WLI(g)

Notes:*(1) Payment of technical fees pursuant to a Technical Service Agreement entered into between

Ornasteel and CSC dated 1 February 2006.

Interestedmajorshareholder(a) CSAP

(i) CSAP being a wholly-owned subsidiary of CSC.(ii) CSAP being a wholly-owned subsidiary of CSC. CSC is the holding company of

CSGT.(iii) CSAP being a wholly-owned subsidiary of CSC. CSC is the holding company of

CSMC.(iv) CSAP being a wholly-owned subsidiary of CSC. CSC is the holding company of ISC.(v) CSAP being a wholly-owned subsidiary of CSC. CSC is a substantial shareholder of

CHSC.(vi) CSAP being a wholly-owned subsidiary of CSC. CSC is the holding company of CSGT.

CSGT is the holding company of CSGTS.

InterestedDirectorsCYH - Dr. Chung, Yeong-HueiHTY - Huang, Tsong-YingCSA - Chang, Shu-AunCTH - Chen, Tzer-HawCYC - Chen, Yuan-ChengCLM - Chung, Lo-MinWLI - Dr. Wei, Li-I



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(b) Dr. Chung Yeong-Huei (appointed to the OHB Group as the Group Managing Director on 16 January 2006), Huang Tsong-Ying and Chang Shu-Aun all being employees and shareholders of CSC and also directors and shareholders of the Company. They are also directors of Ornasteel, Group Steel and Ornaconstruction.

(c) The following are directors of subsidiaries of OHB i.e. Ornasteel, Group Steel and Ornaconstruction, and are also employees, directors and shareholders of CSC:(i) Chen Tzer-Haw (was director of Ornasteel, Group Steel and Ornaconstruction from 14

December 2000 till 30 March 2006) (ii) Chen Yuan-Cheng (was director of Ornasteel, Group Steel and Ornaconstruction from

15 February 2001 till 16 January 2006)(iii) Chung Lo-Min (was appointed as a director of Ornasteel, Group Steel and

Ornaconstruction on 30 March 2006)

(d) Chen Tzer-Haw being a director of CSGT and CHSC.

(e) Chen Yuan-Cheng being a director CSGT, CSMC and ISC.

(f) Huang Tsong-Ying being a director of CSGTS.

(g) Dr. Wei Li-I, a Director of OHB since 5 October 2004 until his resignation on 16 January 2006, is an employee and shareholder of CSC.

(II) GroupSteel


CSC Purchase of raw materials Interested Shareholder 60,276 from CSC CSAP(a)(i)

Payment of technical Interested Directors 41 fees to CSC*(1) CYH(b), HTY(b), CSA(b), CTH(c)(i), CYC(c)(ii), CLM(c)(iii) and WLI (g) CSGT Purchase of spare parts, Interested Shareholder 994 rollers and chemicals CSAP(a)(ii) from CSGT Interested Directors 296 Payment of sales CYH(b), HTY(b), CSA(b), commission to CSGT CTH(c)(i),(d), CYC(c)(ii),(e), CLM(c)(iii) and WLI(g)

CHSC Purchase of raw materials Interested Shareholder 57,216 from CHSC CSAP(a)(iii)

Interested Directors CYH(b), HTY(b), CSA(b), CTH(c)(i),(d), CYC(c)(ii), CLM(c)(iii) and WLI(g)

CSGTS Payment of sales Interested Shareholder 88 commission to CSGTS CSAP(a)(iv)

Interested Directors CYH(b), HTY(b)(f), CSA(b), CTH(c)(i), CYC(c)(ii), CLM(c)(iii) and WLI(g)


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Notes:*(1) Payment of technical fees pursuant to a Technical Service Agreement entered into between

Group Steel and CSC dated 1 February 2006

Interestedmajorshareholder(a) CSAP

(i) CSAP being a wholly-owned subsidiary of CSC.(ii) CSAP being a wholly-owned subsidiary of CSC. CSC is the holding company of

CSGT.(iii) CSAP being a wholly-owned subsidiary of CSC. CSC is a substantial shareholder of

CHSC.(iv) CSAP being a wholly-owned subsidiary of CSC. CSC is the holding company of CSGT.

CSGT is the holding company of CSGTS.

InterestedDirectorsCYH - Dr. Chung, Yeong-HueiHTY - Huang, Tsong-YingCSA - Chang, Shu-AunCTH - Chen, Tzer-HawCYC - Chen, Yuan-Cheng CLM - Chung, Lo-Min WLI - Dr. Wei, Li-I

(b) Dr. Chung Yeong-Huei (appointed to the OHB Group as the Group Managing Director on 16 January 2006), Huang Tsong-Ying and Chang Shu-Aun all being employees and shareholders of CSC and also directors and shareholders of the Company. They are also directors of Ornasteel, Group Steel and Ornaconstruction.

(c) The following are directors of subsidiaries of OHB i.e. Ornasteel, Group Steel and Ornaconstruction, and are also employees, directors and shareholders of CSC:(i) Chen Tzer-Haw (was director of Ornasteel, Group Steel and Ornaconstruction from 14

December 2000 till 30 March 2006) (ii) Chen Yuan-Cheng (was director of Ornasteel, Group Steel and Ornaconstruction from

15 February 2001 till 16 January 2006)(iii) Chung Lo-Min (was appointed as a director of Ornasteel, Group Steel and

Ornaconstruction on 30 March 2006)

(d) Chen Tzer-Haw being a director of CSGT and CHSC.

(e) Chen Yuan-Cheng being a director CSGT, CSMC and ISC.

(f) Huang Tsong-Ying being a director of CSGTS.

(g) Dr. Wei Li-I, a Director of OHB since 5 October 2004 until his resignation on 16 January 2006, is an employee and shareholder of CSC.

5. STATEMENTPERTAININGTOTHEALLOCATIONOFSHAREOPTIONSTOEMPLOYEES

To date, the Company has not established any share options for employees.

In the event the Company establishes such employees share options scheme (“ESOS”), the Audit Committee would carry the responsibility of reviewing all allocations granted to eligible employees to ensure compliance with the criteria as would have been spelt out in the by-laws of the Company’s proposed ESOS.



1�INTERNALCONTROLSTATEMENT

The Board acknowledges the importance of maintaining a good internal control system covering risk management and the financial, operational and compliance controls, as set out under Part 1D II of the Code, to safeguard shareholders’ investments and the Group’s assets.

RESPONSIBILITY

The Board of Directors is responsible for the Group’s system of internal controls and its effectiveness. However, such a system is designed to manage the Group’s risks within an acceptable risk profile rather than eliminate the risk of failure to achieve the policies and business objectives of the Group. Accordingly, it can only provide reasonable assurance but not absolute assurance against material misstatement of management and financial information and records or against financial losses or fraud.

RISKMANAGEMENT

The Board recognises that an important element of a sound system of internal control is to have in place a risk management framework in order to identify principal risks and implement appropriate controls to manage such risks. The present process of identifying and addressing risk is conducted informally.

A Risk Awareness Workshop was conducted on 16 and 17 August 2006 for the Management of the Group. The Workshop has enhanced risk culture and risk consciousness amongst the participants and has assisted in creating a common understanding of risk management framework and process. It has also enhanced the participants’ appreciation of risk management theories and practical applications.

INTERNALAUDITFUNCTION

The internal audit function is jointly undertaken by the Company’s external professional advisor, Messrs. Ernst & Young, together with its in-house internal auditor (collectively referred to as the “Internal Audit Team”).

The internal audit plan is reviewed annually and if necessary, adjusted to reflect the changes in the Group’s operating environment. Any significant change to the plan will be referred to the Audit Committee (“AC”) for notification prior to the commencement of the audit. At the start of the internal audit programme for the financial year ended 31 December 2006, the Internal Audit Team has carried out a high level risk assessment on the Group’s operations in order to align the internal audit with the business objectives of the Group and to ensure an efficient and effective level of internal audit coverage.

For the financial year under review, the internal audit plan proposed by the Internal Audit Team was approved by the AC and internal audit has been carried out in accordance to the approved plan.

On completion of each internal audit, the Internal Audit Team would submit and discuss the internal audit report with the AC. The internal audit report contains observations and recommendations of the Internal Audit Team as well as the Management’s responses. At subsequent AC meetings, the Internal Audit Team would update the AC on the timeliness and effectiveness of actions taken by the Group’s Management in relation to the internal audit findings.

KEYELEMENTSOFINTERNALCONTROL

• The Group has an appropriate organization structure for planning, organising and executing the business operations to ensure the Group’s objectives are achieved.

• Lines of responsibility and delegations of authority are clearly defined covering areas such as approval of capital expenditure, investment, procurement, finance, etc.

• Policies and procedures are in place to govern key processes to ensure smooth running of the Group’s day-to-day operations.

• The Group has established a Health and Safety Committee to review and ensure compliance with occupational safety and health policies and procedures on a continuous basis.

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• A monitoring and reporting system, which highlights significant variances against key performance indicators, is in place to monitor business performance. Key variances are investigated and followed up by the Management.

• Ornasteel and Group Steel have been awarded with ISO 9001:2000 Quality Management System Certification since 2003. The Quality Management System had strengthened the Group’s control over key processes and serves as a foundation for improving quality, customer services as well as customer satisfaction.

For the financial year under review, there were no material losses incurred as a result of any weaknesses in internal control. The Management is committed to continuously take measures to strengthen the control environment.

MONITORINGACTIVITIES

The Board confirms that there is a continuous process for identifying, evaluating and managing the significant risks faced by the Group.

Key activities that the Directors have established in reviewing the adequacy and integrity of the system of internal control are as follows:

• Monthly review of the management accounts of the Group by the Senior Management team.• Quarterly review of the unaudited financial results of the Group by the AC and Board of Directors.• Conducting internal audit on key risks areas identified during high level risk assessment by the Internal Audit

Team which reports directly to the AC. The Internal Audit Team assesses the effectiveness of internal controls in relation to specific critical control processes and highlights significant risks impacting the Group to the AC.

This statement was made in accordance with a resolution of the Board of Directors passed on 3 May 2007.

INTERNALCONTROLSTATEMENT( cont’d )


�0AUDITCOMMITTEEREPORT

The Audit Committee serve to assist the Board in ensuring the effectiveness of the Group’s system of internal control, risk management and financial reporting practices of the Group.

1. COMPOSITIONOFTHEAUDITCOMMITTEE

The Audit Committee of OHB comprises of the following members:-

Chairman Pang Fee Yoon (Independent Non-Executive Director)

Members Chong Khim Leong @ Chong Kim Leong (Independent Non-Executive Director) Chang, Shu-Aun (Executive Director)

2. TERMSOFREFERENCE

2.1 CompositionoftheAuditCommittee

Members of the Audit Committee shall be appointed by the Board from amongst themselves and the Committee must fulfil the following requirements:

a. The Audit Committee must comprise at least 3 members.b. A majority of the Audit Committee must be independent directors.c. At least 1 member of the Audit Committee:

(i) must be a member of the MIA; or(ii) if he is not a member of the MIA, he must have at least 3 years' working experience and:

(aa) he must have passed the examinations speficied in Part I of the 1st Schedule of the Accountants Act 1967; or

(bb) he must be a member of one of the associations of accountants specified in Part II of the 1st Schedule of the Accountants Act 1967; or

(iii) fulfils such other requirements as prescribed by the Exchange.

d. No alternate director shall be appointed as a member of the Audit Committee.

Members of the Audit Committee shall elect a Chairman from amongst themselves who shall be an Independent Director.

All members of the Audit Committee, including the Chairman, will hold office only so long as they serve as Directors of the Company.

The Board would review the term of office and performance of the Audit Committee and each of its members at least once every 3 years to determine whether the Audit Committee has carried out its duties in accordance with its Terms of Reference.

2.2 SecretaryoftheAuditCommittee

The Company Secretaries of the Company shall act as Secretaries for the Audit Committee.

2.3 DutiesandResponsibilitiesoftheAuditCommittee

The following are the main duties and responsibilities of the Audit Committee collectively:

i) to oversee the Company’s internal control structure to assure operational effectiveness and efficiency, reduce risk of inaccurate financial reporting, protect the Company’s assets from misappropriation and encourage legal and regulatory compliance.

ii) to assist the Board in identifying principal risks in the achievement of the Company’s objectives and ensuring the implementation of appropriate systems to manage these risks.

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iii) to recommend to the Board on the appointment and re-appointment of the external auditors and their audit fee, after taking into consideration the independence and objectivity of the external auditors and the cost effectiveness of the audit.

iv) to discuss with the external auditors before the audit commences, the nature and scope of the audit, and to ensure co-ordination where more than one audit firm is involved.

v) to review the quarterly interim results, half-year and annual financial statements of the Company and the Group prior to approval by the Board, focusing particularly on:

· any changes in accounting policies and practices· significant adjustments arising from the audit· the going concern assumption· compliance with accounting standards and other legal requirements

vi) to discuss problems and reservations arising from the audits and any matter the auditors may wish to discuss in the absence of the Management, where necessary.

vii) to review the external auditor’s management letter and Management’s response therein.

viii) to review, together with the external auditors, the draft statement to be made by the Board with regard to the state of internal control of the Group and report the results thereof to the Board.

ix) to review the assistance and co-operation given by the Company and the Group’s officers to the external and internal auditors.

x) to review any letter of resignation from the external auditors and any questions of resignation or dismissal.

xi) in regards to the Internal Audit function, to review the:

• adequacy of the scope, function and resources of the internal audit function and that it has the necessary authority to carry out its work;

• internal audit program and results of the internal audit process and where necessary, to ensure that appropriate action is taken based on the recommendations of the internal audit function;

xii) to consider major findings of internal investigations and the Management’s response;

xiii) to review any related party transactions and conflict of interest situations that may arise within the Company or the Group including any transaction, procedure or course of conduct that raises questions of Management’s integrity; and

xiv) to consider other matters as defined by the Board.

2.4 AuthorityoftheAuditCommittee

In carrying out its duties and responsibilities, the Audit Committee shall have the following rights:

i) Explicit authority to investigate any matter within its terms of reference.ii) The resources required to perform its duties.iii) Full, free and unrestricted access to any information, records, properties and personnel of the Company

and of any other companies within the Group.iv) Direct communication channels with the external auditors and person(s) carrying out the internal

audit function or activity.v) Be able to obtain independent professional or other advice and to invite outsiders with relevant

experience and expertise to attend the Audit Committee meetings (if so required) and to brief the Audit Committee.

Attendance of any particular Audit Committee meeting by other directors and employees of the Company shall be at the Audit Committee’s invitation and discretion and must be specific to the relevant meeting.

AUDITCOMMITTEEREPORT( cont’d )


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2.5 ConductofMeetings

i) The Audit Committee shall meet at least 4 times annually or more frequently as circumstances dictate. Additional meetings may be called at any time at the discretion of the Chairman of the Audit Committee. The external auditors may request for a meeting if they consider it necessary.

ii) The quorum shall consist of a majority of independent non-executive committee members and shall be not less than 2.

iii) Recommendations to the Audit Committee are submitted to the Board for approval.

iv) The Company Secretaries shall be in attendance at each Audit Committee meeting and record the proceedings of the meeting thereat.

v) Minutes of each meeting shall be kept as part of the statutory record of the Company upon confirmation by the members at the subsequent Committee meeting and a copy shall be distributed to each member of the Audit Committee.

vi) The Managing Director and other appropriate officer may be invited to attend where their presence are considered appropriate as determined by the Chairman of the Audit Committee.

vii) The internal and/or external auditors have the right to appear and be heard at any meeting of the Audit Committee.

viii) On the request of the auditor(s), the Chairman of the Audit Committee shall also convene a meeting of the Audit Committee to consider any matters the auditor(s) believed should be brought to the attention of the Board or the shareholders.

ix) The Audit Committee must be able to convene meetings with external auditors without the presence of the executive Board members and the Management at least once a year and whenever deemed necessary.

x) Where the Audit Committee is of the view that a matter reported by it to the Board has not been satisfactorily resolved resulting in a breach of the requirements of the Bursa Securities, the Audit Committee must promptly report such matter to Bursa Securities.

3. MEETINGS

During the year, the Committee held a total of 4 meetings, details of attendance of each Committee member are as follows:

CommitteeMembers Attendance

Pang Fee Yoon (Chairman) 4 of 4Chong Khim Leong @ Chong Kim Leong (Member) 4 of 4Chang, Shu-Aun (Member) 4 of 4

The Vice President and Senior Manager of Finance Division, both the outsourced and in-house Internal Auditors and a representative of its controlling shareholder attended all the Committee meetings upon invitation by the Chairman of the Committee.

Other senior management staff attended certain meetings upon invitation by the Chairman.


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4. SUMMARYOFACTIVITIES

A brief summary and an overall view of the activities of the Audit Committee in discharging their duties and responsibilities during the financial year are as follows:-

i) reviewed the quarterly financial results of the Group prior to their release to the Bursa Securities; ii) reviewed the audit plan and scope of the statutory audit of the Group’s financial statements for the financial

year ended 31 December 2006 with the external auditors;iii) reviewed the annual audited financial statements of the Group and attended to issues arising from the audit

of the financial statements together with the external auditors’ management letter and the Management’s response thereon;

iv) reviewed the internal audit plan, work done and reports from the internal audit function and considered the findings of internal audit investigations and Management’s responses thereon and ensure that appropriate actions are taken on the recommendations raised by the outsourced Internal Auditors; and

v) Reviewed related party transactions for compliance with both in-house procedures and Bursa Securities’ Listing Requirements.

5. INTERNALAUDITFUNCTION

The Audit Committee is aware that an independent and adequately resourced internal audit function is essential to assist them in obtaining the assurance it requires regarding the maintenance of a sound system of internal controls.

An external professional consultant had been engaged to lead the role of internal audit functions of the Group assisted by the Group’s own internal audit team with the primarily function to assist the Audit Committee in discharging their duties and responsibilities more effectively. When the Company’s existing internal audit department is ready to assume full responsibility for the Group’s internal audit functions, the Company may in the future phase out their partnership with the said external professional consultant.

The main role of the internal audit function is to carry out independent assessments of the adequacy, efficiency and effectiveness of the Group’s internal control systems in anticipating potential risk areas within key business processes of the Group. Once the internal control systems have been assessed, the outsourced Internal Auditors will report to the Committee on their findings and provide recommendations for improvements/rectifications.

Their findings as embodied in the internal audit function reports will be forwarded to the Management team for their attention and for the necessary remedial actions as recommended therein in a timely manner.

The Audit Committee has full access to the outsourced Internal Auditors and receives and reviews reports from them on all internal audits performed. The internal audit department continuously monitors the status of the remedial actions being undertaken by the Management.

During the financial year ended 31 December 2006, internal audit activities have been carried out in accordance with the pre-approved internal audit plan.



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DIRECTORS'RESPONSIBILITIESSTATEMENTIn Relation To The Financial Statements

It is a requirement for the Directors to prepare financial statements which give a true and fair view of the state of affairs of the Company and of the Group at the end of each financial year and of their results and their cash flows for the year then ended.

In preparing the financial statements, the Directors have taken steps to ensure that:-

• the Company and the Group have used appropriate accounting policies which have been consistently applied.• the judgements and estimates made are reasonable and prudent; and • all approved accounting standards which are applicable in Malaysia have been complied with.

The Directors are responsible for ensuring that proper accounting records, which disclose with a reasonable degree of accuracy the financial position of the Company and the Group, are maintained in compliance with the provisions of the Companies Act, 1965.

The Directors also have general responsibilities for taking steps as are reasonable towards safeguarding the assets of the Group and to prevent and detect fraud and other irregularities.

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DIRECTORS'REPORT

The directors of ORNASTEELHOLDINGSBERHAD have pleasure in submitting their report and the audited financial statements of the Group and the Company for the year ended December 31, 2006.

PRINCIPALACTIVITY

The Company is principally involved in investment holding and provision of management services. The principal activities of the subsidiary companies are as disclosed under Note 13 to the Financial Statements.

There have been no significant changes in the nature of the principal activities of the Company and its subsidiary companies during the financial year.

RESULTSOFOPERATIONS

The results of operations of the Group and the Company for the financial year are as follows: TheGroup TheCompany RM RM

Profitbeforetax 81,356,476 23,109,657 Incometaxexpense (9,390,133) (6,513,967) Netprofitfortheyear 71,966,343 16,595,690

In the opinion of the directors, the results of operations of the Group and the Company during the financial year have not been substantially affected by any item, transaction or event of a material and unusual nature other than the effects arising from changes in accounting policies and estimates as disclosed in Notes 2, 3 and 29 to the Financial Statements.

DIVIDENDS

A first and final dividend of 5%, less tax, amounting to RM13,680,000, approved by the shareholders in respect of the previous financial period, was paid by the Company during the financial year.

The directors do not recommend the payment of any dividend in respect of the current financial year.

RESERVESANDPROVISIONS

There were no material transfers to or from reserves or provisions during the financial year other than those disclosed in the financial statements.

ISSUEOFSHARESANDDEBENTURES

The Company has not issued any new shares or debentures during the financial year.

SHAREOPTIONS

No options have been granted by the Company to any parties during the financial year to take up unissued shares of the Company.

No shares have been issued during the financial year by virtue of the exercise of any option to take up unissued shares of the Company. As of the end of the financial year, there were no unissued shares of the Company under options.


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OTHERFINANCIALINFORMATION

Before the balance sheets and income statements of the Group and the Company were made out, the directors took reasonable steps:

(a) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts, and have satisfied themselves that there were no known bad debts to be written off and that adequate allowances have been made for doubtful debts; and

(b) to ensure that any current assets which were unlikely to realise their book values in the ordinary course of business have been written down to their estimated realisable values.

At the date of this report, the directors are not aware of any circumstances:

(a) which would necessitate the writing off of bad debts or render the amount of allowance for doubtful debts in the financial statements of the Group and the Company inadequate to any substantial extent; or

(b) which would render the values attributed to current assets in the financial statements of the Group and the Company misleading; or

(c) which have arisen and render adherence to the existing method of valuation of assets or liabilities of the Group and the Company misleading or inappropriate; or

(d) not otherwise dealt with in this report or financial statements which would render any amount stated in the financial statements of the Group and the Company misleading.

At the date of this report, there does not exist:

(a) any charge on the assets of the Group and the Company which has arisen since the end of the financial year and secures the liability of any other person; or

(b) any contingent liability of the Group and the Company which has arisen except those disclosed in Note 28 to the financial statements since the end of the financial year.

No contingent or other liability has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the directors, will or may substantially affect the ability of the Group and the Company to meet its obligations as and when they fall due.

In the opinion of the directors, no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of operations of the Group and the Company for the succeeding financial year.

DIRECTORS

The following directors served on the Board of the Company since the date of the last report:

Huang, Tsong-Ying Chang, Shu-Aun Tan Chin Teng Pang Fee Yoon Chong Khim Leong @ Chong Kim Leong Dr. Chung, Yeong-Huei Brig. Jen. (B) Dato’ Mohd Zaaba @ Nik Zaaba Bin Nik Daud (appointed on August 23, 2006)

Brig. Jen. (B) Dato’ Mohd Zaaba @ Nik Zaaba Bin Nik Daud who was appointed to the Board since the last Annual General Meeting, retires under Article 133 of the Company’s Articles of Association and, being eligible, offers himself for re-election.

In accordance with Article 128 of the Company’s Articles of Association, Dr. Chung, Yeong-Huei and Mr. Huang, Tsong-Ying retire by rotation and, being eligible, offer themselves for re-election at the forthcoming Annual General Meeting of the Company.

DIRECTORS'REPORT( cont’d )

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DIRECTORS’INTERESTS

The shareholdings in the Company and ultimate holding company of those who were directors at the end of the financial year, as recorded in the Register of Directors’ Shareholdings kept by the Company under Section 134 of the Companies Act, 1965, are as follows:

No.ofordinarysharesofRM1each Balanceat 1.1.2006/ dateof Balanceat appointment Bought Sold 31.12.2006

SharesintheCompany Registeredinthenameofdirectors

Huang, Tsong-Ying 80,000 – – 80,000Chang, Shu-Aun 80,000 – – 80,000Tan Chin Teng 80,000 – – 80,000Pang Fee Yoon 20,000 – – 20,000Chong Khim Leong @ Chong Kim Leong 20,000 – – 20,000Dr. Chung, Yeong-Huei – 62,000 – 62,000Brig. Jen. (B) Dato’ Mohd Zaaba @ Nik Zaaba Bin Nik Daud – 20,000 – 20,000

No.ofordinarysharesof*NTD10each Balanceat 1.1.2006/ dateof Balanceat appointment Bought Sold 31.12.2006

Sharesinultimateholdingcompany, ChinaSteelCorporation

Registeredinthenameofdirectors

Huang, Tsong-Ying 206,486 68,200 (50,000) 224,686Chang, Shu-Aun 277,339 21,206 – 298,545Dr. Chung, Yeong-Huei 215,309 46,788 (50,000) 212,097

DeemedinterestDr. Chung, Yeong-Huei 21,150 635 (5,000) 16,785 **

* New Taiwan Dollar ** Indirect interest by virtue of shares held by members of the directors’ family and by companies in which the

director has interest

By virtue of their interests in the shares of the Company, all the directors are deemed to have an interest in the shares of the subsidiary companies to the extent of the Company’s interest.



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DIRECTORS'BENEFITS Since the end of the previous financial period, none of the directors of the Company has received or become entitled to receive any benefit (other than those disclosed as directors' remuneration in the financial statements) by reason of a contract made by the Company or a related corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial interest. During and at the end of the financial year, no arrangement subsisted to which the Company was a party whereby directors of the Company might acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

HOLDINGCOMPANIES The Company is a subsidiary of China Steel Asia Pacific Holdings Pte. Ltd., incorporated in the Republic of Singapore, and the directors regard China Steel Corporation, incorporated in Taiwan, as the ultimate holding company.

AUDITORS The auditors, Messrs. Deloitte & Touche, have indicated their willingness to continue in office.

Signed on behalf of the Boardin accordance with a resolution of the Directors,

DR.CHUNG,YEONG-HUEI

CHANG,SHU-AUN

MelakaJanuary 12, 2007


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REPORTOFTHEAUDITORSTo The Members Of Ornasteel Holdings Berhad (Incorporated In Malaysia)

We have audited the accompanying balance sheets as of December 31, 2006 and the related statements of income, cash flows and changes in equity for the year then ended. These financial statements are the responsibility of the Company’s directors. It is our responsibility to form an independent opinion, based on our audit, on these financial statements and to report our opinion to you, as a body, in accordance with Section 174 of the Companies Act, 1965 and for no other purpose. We do not assume responsibility towards any other person for the contents of this report.

We conducted our audit in accordance with approved standards on auditing in Malaysia. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion: (a) the financial statements are properly drawn up in accordance with the provisions of the Companies Act, 1965

and the applicable Malaysian Accounting Standards Board approved accounting standards in Malaysia so as to give a true and fair view of:

(i) the state of affairs of the Group and the Company as of December 31, 2006 and of the results and the cash

flows of the Group and the Company for the year ended on that date; and (ii) the matters required by Section 169 of the Act to be dealt with in the financial statements and consolidated

financial statements; and

(b) the accounting and other records and the registers required by the Act to be kept by the Company and by the subsidiary companies have been properly kept in accordance with the provisions of the Act.

We are satisfied that the financial statements of the subsidiary companies that have been consolidated with the financial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements, and we have received satisfactory information and explanations as required by us for these purposes.

The auditors' reports on the financial statements of the subsidiary companies were not subject to any qualification and did not include any comment made under Sub-section (3) of Section 174 of the Act.

DELOITTE&TOUCHEAF 0834 Chartered Accountants

HIEWKIMTIAM1717/08/07 (J)Partner

January 12, 2007


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INCOMESTATEMENTSFor The Year Ended December 31, 2006(With Comparative Figures For The Period December 1, 2004 To December 31, 2005)

TheGroup TheCompany 2006 2005 2006 2005 (12Months) (13Months) (12Months) (13Months) Note RM RM RM RM

Revenue 5 1,024,627,278 1,240,422,337 25,600,000 3,900,000 Cost of sales (914,664,430) (1,146,349,580) – –

Gross profit 109,962,848 94,072,757 25,600,000 3,900,000 Other operating income 18,005,827 10,263,230 15,470 6,672 Sales and marketing expenses (17,588,890) (18,310,107) – –General and administrative expenses (9,517,939) (9,019,790) (2,505,813) (2,767,221) Accretion of reserve on consolidation – 22,317,780 – – Other operating expenses (18,184,441) (3,127,169) – –

Profit from operations 7 82,677,405 96,196,701 23,109,657 1,139,451 Finance cost 8 (1,320,929) (6,056,869) – –

Profitbeforetax 81,356,476 90,139,832 23,109,657 1,139,451 Income tax expense 9 (9,390,133) (10,448,464) (6,513,967) (326,367)

Netprofitfortheyear/period 71,966,343 79,691,368 16,595,690 813,084

Basic earnings per ordinary share (sen) 10 18.97 20.97

The accompanying Notes form an integral part of the Financial Statements.

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BALANCESHEETSAs Of December 31, 2006

TheGroup TheCompany 2006 2005 2006 2005 Note RM RM RM RM

ASSETS Non-currentassetsProperty, plant and equipment 11 369,275,665 337,121,264 – – Prepaid lease payments on leasehold lands 12 20,009,455 20,244,571 – –Investment in subsidiary companies 13 – – 414,445,306 414,445,306

389,285,120 357,365,835 414,445,306 414,445,306

CurrentassetsInventories 14 220,332,765 151,364,949 – – Trade receivables 15 105,680,901 129,384,521 – – Other receivables, deposits and prepaid expenses 15 8,580,343 23,957,796 13,000 5,357 Tax recoverable 4,612,179 4,845,894 11,955 – Amount due from ultimate holding company 16 – 2,788,826 – –Fixed income fund, fixed deposits, cash and bank balances 17 82,757,160 54,007,633 131,212 70,207

421,963,348 366,349,619 156,167 75,564

TOTALASSETS 811,248,468 723,715,454 414,601,473 414,520,870

EQUITYANDLIABILITIES

CapitalandreservesIssued capital 18 380,000,000 380,000,000 380,000,000 380,000,000 Treasury shares 18 (1,800,871) – (1,800,871) – Reserves 19 260,853,062 202,566,719 36,157,600 33,241,910

Totalequity 639,052,191 582,566,719 414,356,729 413,241,910

Non-currentliabilitiesLong-term loan 20 37,665,640 – – –Deferred tax liability 21 54,014,773 62,428,917 – –

91,680,413 62,428,917 – –


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TheGroup TheCompany 2006 2005 2006 2005 Note RM RM RM RM

CurrentliabilitiesTrade payables 22 6,942,515 2,282,076 – – Other payables and accrued expenses 22 25,220,511 18,511,139 244,744 142,735 Amount due to ultimate holding company 16 19,415 – – – Amount due to subsidiary company 16 – – – 1,091,225 Amount due to other related companies 16 6,647,433 – – –Short-term borrowings 23 41,685,990 50,263,603 – –Long-term loans - current portion 20 – 7,618,000 – –Tax liability – 45,000 – 45,000

80,515,864 78,719,818 244,744 1,278,960

Totalliabilities 172,196,277 141,148,735 244,744 1,278,960

TOTALEQUITYAND LIABILITIES 811,248,468 723,715,454 414,601,473 414,520,870


BALANCESHEETSAs Of December 31, 2006

( cont’d )

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STATEMENTSOFCHANGESINEQUITYFor The Year Ended December 31, 2006

Non-Distributable Distributable Reserves Reserve- Issued Share Reserveon Unappropriated Note Capital Premium Consolidation Profit TotalTheGroup RM RM RM RM RM

BalanceasofDecember1,2004 380,000,000 34,445,308 99,571,635 13,180,357 527,197,300Net profit for the period – – – 79,691,368 79,691,368

380,000,000 34,445,308 99,571,635 92,871,725 606,888,668Listing expenses – (2,004,169) – – (2,004,169)Accretion of reserve on consolidation – – (22,317,780) – (22,317,780)

BalanceasofDecember31,2005 380,000,000 32,441,139 77,253,855 92,871,725 582,566,719

Distributable Non-DistributableReserves Reserve- Issued Treasury Share ReserveOn UnappropriatedTheGroup Note Capital Shares Premium Consolidation Profit Total RM RM RM RM RM RM

Balanceasof January1,2006 As previously reported 380,000,000 – 32,441,139 77,253,855 92,871,725 582,566,719Effect of changes in accounting policy 29 – – – (77,253,855) 77,253,855 –

As restated 380,000,000 – 32,441,139 – 170,125,580 582,566,719 Net profit for the year – – – – 71,966,343 71,966,343

380,000,000 – 32,441,139 – 242,091,923 654,533,062 Shares buy-back 19 – (1,800,871) – – – (1,800,871) Dividends 24 – – – – (13,680,000) (13,680,000)

Balanceasof December31,2006 380,000,000 (1,800,871) 32,441,139 – 228,411,923 639,052,191


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Distributable Non-Distributable Reserve- Reserves Unappropriated Issued Treasury Share Profit/ Note Capital Shares Premium (AccumulatedLoss) TotalTheCompany RM RM RM RM RM

BalanceasofDecember1,2004 380,000,000 – 34,445,308 (12,313) 414,432,995Net profit for the period – – – 813,084 813,084

380,000,000 – 34,445,308 800,771 415,246,079Listing expenses – – (2,004,169) – (2,004,169)

BalanceasofDecember31,2005 380,000,000 – 32,441,139 800,771 413,241,910

BalanceasofJanuary1,2006 380,000,000 – 32,441,139 800,771 413,241,910Net profit for the year – – – 16,595,690 16,595,690

380,000,000 – 32,441,139 17,396,461 429,837,600Shares buy-back 19 – (1,800,871) – – (1,800,871)Dividends 24 – – – (13,680,000) (13,680,000)

BalanceasofDecember31,2006 380,000,000 (1,800,871) 32,441,139 3,716,461 414,356,729

The accompanying Notes from an integral part of the Financial Statements.

STATEMENTSOFCHANGESINEQUITYFor The Year Ended December 31, 2006

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CASHFLOWSTATEMENTSFor The Year Ended December 31, 2006

(With Comparative Figures For The Period December 1, 2004 To December 31, 2005)


CASHFLOWSFROM/ (USEDIN)OPERATING ACTIVITIESProfit before tax 81,356,476 90,139,832 23,109,657 1,139,451Adjustments for:Depreciation of property, plant and equipment 31,652,370 36,182,323 – –Property, plant and equipment written off 14,846,492 838,327 – –Write down of inventories 5,326,784 11,227,923 – –Finance costs 1,320,929 6,056,869 – –Amortisation of prepaid lease payments 235,116 251,643 – –Unrealised (gain)/loss on foreign exchange 13,605 (87,337) – –Allowance for doubtful debts/ (no longer required) – net (7,959,902) 1,199,318 – –Interest income (2,087,784) (1,701,767) (15,370) –(Gain)/Loss on disposal of property, plant and equipment (521,992) 30,258 – –Accretion of reserve on consolidation – (22,317,780) – –Dividend income – – (20,200,000) –

Operating Profit Before Working Capital Changes 124,182,094 121,819,609 2,894,287 1,139,451

(Increase)/Decrease in: Inventories (74,294,600) 17,683,351 – – Trade receivables 31,663,522 29,731,296 – – Other receivables, deposits and prepaid expenses 15,469,064 49,291,509 (7,643) 953,267

Amount due from ultimate holding company 2,788,826 (2,788,826) – – Amount due from subsidiary company – – – 150,000

Increase/(Decrease) in: Trade payables 4,660,439 1,580,696 – –Other payables and accrued expenses 6,695,767 (8,059,047) 102,009 (53,511) Amount due to ultimate holding company 19,415 (2,957) – –Amount due to subsidiary company – – (1,091,225) 187,753 Amount due to related companies 6,647,433 (705,069) – –

Net Cash From Operations 117,831,960 208,550,562 1,897,428 2,376,960

Income tax paid (17,615,562) (19,783,327) (914,922) (307,567) Interest paid (1,357,098) (6,218,682) – –

Net Cash From Operating Activities 98,859,300 182,548,553 982,506 2,069,393


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CASHFLOWSFROM/ (USEDIN)INVESTING ACTIVITIESInterest received 2,032,342 1,701,767 15,370 –Proceeds from disposal of property, plant and equipment 533,878 60,769 – –Purchase of property, plant and equipment (78,665,149) (27,202,585) – – Proceeds from disposal of short-term investments – 5,000,000 – –Dividend received from subsidiary companies – – 14,544,000 –Prepayment of leasehold land – (248,157) – –

Net Cash From/(Used In) Investing Activities (76,098,929) (20,688,206) 14,559,370 –

CASHFLOWSFROM/ (USEDIN)FINANCING ACTIVITIESProceeds from short-term borrowings 154,900,000 363,520,000 – –Proceeds from long-term loan 37,665,640 – – –Short-term borrowings paid (163,774,200) (437,268,300) – –Dividend paid (13,680,000) – (13,680,000) –Repayment of long-term loans (7,618,000) (30,829,500) – –Share buy-back (1,800,871) – (1,800,871) –Bonds repayment – (40,000,000) – –Listing expenses paid – (2,004,169) – (2,004,169)

Net Cash From/(Used In) Financing Activities 5,692,569 (146,581,969) (15,480,871) (2,004,169)

NETINCREASEINCASH ANDCASHEQUIVALENTS 28,452,940 15,278,378 61,005 65,224

CASHANDCASH EQUIVALENTSAT BEGINNINGOF YEAR/PERIOD 53,918,230 38,639,852 70,207 4,983

CASHANDCASH EQUIVALENTSATEND OFYEAR/PERIOD 26 82,371,170 53,918,230 131,212 70,207


CASHFLOWSTATEMENTSFor The Year Ended December 31, 2006(With Comparative Figures For The Period December 1, 2004 To December 31, 2005)

( cont’d )

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NOTESTOTHEFINANCIALSTATEMENTS

1. GENERALINFORMATION

The Company is principally involved in investment holding and provision of management services. The principal activities of its subsidiary companies are as disclosed under Note 14. There have been no significant changes in the nature of the principal activities of the Company and of its subsidiary companies during the financial year.

The registered office of the Company is located at 106A, Taman Melaka Raya, 75000 Melaka.

The principal place of business of the Company is located at 180, Kawasan Perindustrian Ayer Keroh, Ayer Keroh, 75450 Melaka.

The financial statements of the Company have been approved by the Board of Directors for issuance on January 12, 2007.

2. BASISOFPREPARATIONOFFINANCIALSTATEMENTS

The financial statements of the Group and the Company have been prepared in accordance with the provision of the Companies Act, 1965 and the applicable Malaysian Accounting Standards Board (“MASB”) approved accounting standards in Malaysia.

ChangesinAccountingPolicies

In the current year, the Group and the Company adopted all the new and revised Financial Reporting Standards (“FRS”) and IC interpretations issued by MASB that are relevant to its operations and mandatory for financial periods beginning on or after January 1, 2006 as follows:

FRS 3 Business CombinationFRS 101 Presentation of Financial StatementsFRS 102 InventoriesFRS 108 Accounting Policies, Changes in Accounting Estimates and ErrorsFRS 110 Events After the Balance Sheet DateFRS 116 Property, Plant and EquipmentFRS 121 The Effect of Changes in Foreign Exchange RatesFRS 127 Consolidated and Separate Financial StatementsFRS 132 Financial Instruments: Disclosure and PresentationFRS 133 Earnings Per ShareFRS 136 Impairment of AssetsIC Interpretation 115 Operating Leases – Incentives

In addition, the Group and the Company have early adopted the following new and revised FRSs for the financial year beginning January 1, 2006:

FRS 117 LeasesFRS 139 Financial Instruments: Recognition and Measurement

The application of the revised FRS 3, 101, 117 and 139 has resulted in certain changes in the presentation of the consolidated financial statements and the principal changes in accounting policies and their financial effects in the current and prior years are set out in Note 29.

The adoption of the other revised FRSs does not result in significant changes in accounting policies of the Group and the Company and has no significant financial effect on the financial statements of the Group and the Company in the current and prior years.

(a) FRS 3 - Business Combination

FRS 3 requires goodwill acquired in a business combination to be measured at cost and subject to impairment. In accordance with the transitional provisions of FRS 3, the reserve on consolidation as of January 1, 2006 has been adjusted to opening unappropriated profit as at that date.


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( cont’d )NOTESTOTHEFINANCIALSTATEMENTS

(b) FRS 117 - Leases

In prior years, the leasehold interests in long leasehold land were classified as property, plant and equipment and were stated at cost less accumulated depreciation and any impairment losses.

With the adoption of FRS 117 on January 1, 2006, the leasehold interests in long leasehold land are accounted for as being held under operating leases and are reclassified as prepaid lease payments. Such leasehold land will no longer be revalued. Where the leasehold land had been previously revalued, the Group and the Company retained the unamortised revalued amount as the surrogate carrying amount of prepaid lease payments as allowed under the transitional provisions of FRS 117. The prepaid lease payments are amortised on a straight-line basis over the remaining lease term of the land.

(c) FRS 139 - Financial Instruments : Recognition and Measurement

FRS 139 requires the recognition, measurement and disclosure of financial assets and liabilities. This new accounting standard requires measurement from a cost to a fair value base for certain categories of financial assets and liabilities.

With the adoption of FRS 139 on January 1, 2006, trade receivables are individually assessed for recoverability and consequently, general allowance for doubtful debts made in prior years have been fully reversed out. This change in accounting policy has been applied prospectively in accordance with the transitional provisions of FRS 139 and has no impact on amounts reported in prior years.

AccountingStandardsIssuedbutNotEffective

As of date of issuance of the financial statements, the following new and revised FRSs have been issued but not yet effective until future periods:

FRS 6 Exploration for and Evaluation of Mineral ResourcesFRS 119 Amendment to Financial Reporting Standard FRS 1192004 Employee Benefits - Actuarial Gains and Losses, Group Plans and DisclosuresFRS 124 Related Party Disclosures

FRS 6 is effective for accounting periods beginning on or after January 1, 2007. This standard is not relevant to the Group’s operations as the Group does not carry out exploration for and evaluation of mineral resources.

FRS 119 is effective for accounting periods beginning on or after January 1, 2007. The amendment to this standard is not relevant to the Group as the Group does not have post-employment defined benefit plan for its employees.

FRS 124 is effective for accounting periods beginning on or after October 1, 2006. It will affect the identification of related parties and some other related party disclosures. The Group and the Company will apply this standard for the financial year beginning on January 1, 2007.

3. SIGNIFICANTACCOUNTINGPOLICIES

BasisofAccounting

The financial statements of the Group and the Company have been prepared under the historical cost convention.

Revenue

Revenue from sales of goods is measured at the fair value of the consideration received or receivable and is recognised when goods are delivered and title has passed to the customers. Sales represents amounts receivable for goods sold in the normal course of business, net of returns and trade discounts.

Dividend income represents gross dividend from unquoted investments and is recognised when the shareholder’s right to receive payment is established.

Management fee is recognised on time basis, by reference to the agreements entered.

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ForeignCurrencies

The financial statements of the Group and the Company are presented in Ringgit Malaysia, the currency of the primary economic environment in which the Group and the Company operates (its functional currency).

In preparing the financial statements of the Group and the Company, transactions in currencies other than the Group’s and the Company’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statements for the year. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the income statements for the year except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.

BorrowingCosts

Borrowing costs which are directly related to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time when the assets are substantially ready for their intended use.

All other borrowing costs are recognised in the income statements in the period in which they were incurred.

EmployeeBenefits

The Group and the Company is required by law to make monthly contributions to the Employees Provident Fund (“EPF”), a statutory defined contribution plan for all their eligible employees based on certain prescribed rates of the employees' salaries. The Group’s and the Company's contributions to EPF are disclosed separately. The employees' contributions to EPF are included in staff costs.

Taxation

Income tax expense represents the sum of tax currently payable and deferred tax.

Tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statements because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s and the Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences, unutilised tax losses and unused tax credits can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset realised. Deferred tax is charged or credited to the income statements, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group and the Company intends to settle its current tax assets and liabilities on a net basis.


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BasisofConsolidation

The consolidated financial statements incorporate the financial statements of the Company and all its subsidiary companies controlled by the Company made up to December 31, 2006. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The subsidiary companies are consolidated using the acquisition method of accounting whereby, on acquisition, the assets and liabilities of the subsidiary companies are measured at the fair value at the date of acquisition.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated financial statements from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All significant intercompany transactions, balances, income and expenses are eliminated on consolidation.

Property,PlantandEquipmentandDepreciation

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.

Depreciation of property, plant and equipment, except for freehold land and plant and machinery under installation which are not depreciated, is computed on the straight line method at the following annual rates based on the estimated useful lives of the various assets. The annual depreciation rates are as follows:

Buildings under long leases 4%Plant and machinery 4% - 66.67%Motor vehicles 6.67% - 20%Equipment, furniture, fixture and fittings 6.67% - 33.33%

A gain or loss arising from the disposal of an asset is determined as the difference between the estimated net disposal proceeds and the carrying amount of the asset, and is recognised in the income statement.

The residual value, useful life and depreciation method are reviewed at each financial year end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment.

During the financial year, the Group and the Company revised the residual values of certain property, plant and equipment from RM2,015 to RM72,958,794 to better reflect its commercial value at the end of their useful lives. The revisions were accounted for prospectively as a change in accounting estimates and as a result, depreciation charge has been reduced by RM7,026,300 and correspondingly, profit before tax increased by the same amount for the current year.

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Rentals payable under operating leases are charged to the income statements on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread evenly over the lease term.

ImpairmentofAssets

At each balance sheet date, the Group and the Company reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group and the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the income statements, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

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Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the income statements, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

InvestmentInSubsidiaryCompanies

Investment in unquoted shares of subsidiary companies are stated at cost. Where there is an indication of impairment in the value of the assets, the carrying amount of the investment is assessed and written down immediately to its recoverable amount.

Inventories

Inventories are valued at the lower of cost and net realisable value. Cost is determined on weighted average method. The cost of raw materials comprises the original purchase price plus the cost of bringing the inventories to their present location and condition. The costs of work-in-progress and finished goods include the cost of raw materials, direct labour and a proportion of the manufacturing overheads. Net realisable value represents the estimated selling price in the ordinary course of business less selling and distribution costs and all other estimated costs to completion.

Receivables

Receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statements when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

FinancialInstruments

(a) Description

A financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise.

A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset from another enterprise, a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favourable, or an equity instrument of another enterprise. The Group’s principal financial assets are trade and other receivables, intercompany indebtedness, short-term deposits, fixed income fund, fixed deposits, cash and bank balances.

A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another enterprise, or to exchange financial instruments with another enterprise under conditions that are potentially unfavourable. The Group’s significant financial liabilities include trade and other payables and borrowings, which are stated at their nominal values.

Debt and equity instruments are classified as either liabilities or equity in accordance with the substance of the contractual arrangement.

Equity instruments are recorded at the proceeds received, net of direct issue costs.

(b) Financial instruments recognised on the balance sheet

The particular recognition method adopted for financial instruments recognised on the balance sheet is disclosed in the individual accounting policy statements associated with each item.


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(c) Fair value estimation for disclosure purpose

In assessing the fair value of financial instruments, the Group and the Company uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. In particular, the fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rates available to the Group and the Company for similar financial instruments.

The face value, less any estimated credit adjustments, for financial assets and liabilities with tenure to maturity of less than one financial year are assumed to approximate their fair values.

CashFlowStatement The Group and the Company adopts the indirect method in the preparation of the cash flow statement.

Cash equivalents are short-term, highly liquid investments with maturities of three months or less from the date of acquisition and are readily convertible to cash with insignificant risks of changes in value.

4. CRITICALACCOUNTINGJUDGEMENTSANDKEYSOURCESOFESTIMATIONUNCERTAINTY

CriticaljudgementsinapplyingtheCompany’saccountingpolicies

In the process of applying the Group’s and the Company’s accounting policies, which are described in Note 3 above, management is of the opinion that there are no instances of application of judgement which are expected to have a significant effect on the amounts recognised in the financial statements.

Keysourcesofestimationuncertainty

Management believes that there are no key assumptions made concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

5. REVENUE

TheGroup TheCompany 2006 2005 2006 2005 (12Months) (13Months) (12Months) (13Months) RM RM RM RM

Manufacturing and marketing of steel products 1,024,627,278 1,240,422,337 – –Dividend income from subsidiary companies – – 20,200,000 –Management fee from subsidiary companies (Note 16) – – 5,400,000 3,900,000

1,024,627,278 1,240,422,337 25,600,000 3,900,000

6. SEGMENTREPORTING

BusinessSegments

For management purposes, the Group is organised into the following operating divisions:

- Cold rolled steel products- Galvanised steel products- Investment holding- Others (consist of indirect subsidiary company which is dormant)

Inter-segment sales are charged at cost plus a percentage profit mark-up.

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SEGMENTANALYSIS

BusinessSegment

TheGroup ColdRolled Galvanised InvestmentYearended Steel Steel Holding Others Eliminations Consolidated December31,2006 RM RM RM RM RM RM

RevenueExternal sales 457,679,504 566,947,774 – – – 1,024,627,278Inter-segment sales 261,493,371 – 25,600,000 – (287,093,371) –

Total revenue 719,172,875 566,947,774 25,600,000 – (287,093,371) 1,024,627,278

ResultsSegment result 54,170,070 30,517,328 23,109,657 (1,013) (25,118,637) 82,677,405

Profit from operations 82,677,405Finance cost (1,320,929)

Profit before tax 81,356,476Income tax expense (9,390,133)

Net profit for the year 71,966,343

OtherinformationCapital additions 75,711,573 3,108,759 – – (155,183) 78,665,149Depreciation of property, plant and equipment 17,171,817 14,480,339 – 214 – 31,652,370

ConsolidatedBalance SheetAssetsSegment assets 459,183,968 351,650,428 156,167 257,905 – 811,248,468

Consolidated total assets 811,248,468

LiabilitiesSegment liabilities 109,411,308 62,391,238 244,744 148,987 172,196,277

Consolidated total liabilities 172,196,277

GeographicalSegments

TheGroupYearendedDecember31,2006 Malaysia AsiaPacific Europe Others Consolidated

Revenue from external customers by location of customers 894,457,281 76,132,108 49,005,474 5,032,415 1,024,627,278

Segment asset by location of assets 811,248,468 – – – 811,248,468

Capital expenditure by location of assets 78,665,149 – – – 78,665,149


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SEGMENTANALYSIS

BusinessSegment

TheGroup ColdRolled Galvanised Investment13monthsended Steel Steel Holding Others Eliminations Consolidated December31,2005 RM RM RM RM RM RM

RevenueExternal sales 583,702,823 656,719,514 – – – 1,240,422,337Inter-segment sales 336,788,510 – 3,900,000 – (340,688,510) –

Total revenue 920,491,333 656,719,514 3,900,000 – (340,688,510) 1,240,422,337

ResultsSegment result 41,162,120 32,778,434 1,139,452 519 21,116,176 96,196,701

Profit from operations 96,196,701Finance cost (6,056,869)

Profit before tax 90,139,832Income tax expense (10,448,464)

Net profit for the period 79,691,368

OtherinformationCapital additions 24,730,220 2,472,365 – – – 27,202,585Depreciation of property, plant and equipment 18,308,003 17,874,034 – 286 – 36,182,323

ConsolidatedBalance SheetAssetsSegment assets 397,468,451 325,913,168 75,564 258,271 – 723,715,454

Consolidated total assets 723,715,454

LiabilitiesSegment liabilities (84,859,697) (55,953,316) (187,735) (147,987) – (141,148,735)

Consolidated total liabilities (141,148,735)

GeographicalSegments

TheGroup13monthsendedDecember31,2005 Malaysia AsiaPacific Europe Others Consolidated

Revenue from external customers by location of customers 1,006,240,382 191,678,427 10,403,663 32,099,865 1,240,422,337

Segment asset by location of assets 723,715,454 – – – 723,715,454

Capital expenditure by location of assets 27,202,585 – – – 27,202,585

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7. PROFITFROMOPERATIONS

Profit from operations is arrived at after crediting/(charging):


Changes in inventories of finished goods and work-in-progress 42,113,937 (25,580,121) – –Allowance for doubtful debts no longer required/ (Allowance for doubtful debts) - net 7,959,902 (1,199,318) – –Realised gain on foreign exchange 6,697,821 7,039,560 – –Interest income from: Fixed deposit with licensed bank 1,492,358 1,358,254 – – Fixed income fund 595,426 343,513 15,370 –Gain/(Loss) on disposal of property, plant and equipment 521,992 (30,258) – –Raw materials and consumables used (874,480,905) (1,018,071,716) – – Directors’ remuneration: Executive directors Salaries and other emoluments 474,842 541,727 195,659 238,882 Benefits in kind 66,807 71,522 3,366 – Non-executive directors Fees 61,874 62,400 61,874 62,400Depreciation of property, plant and equipment (31,652,370) (36,182,323) – –Staff costs (20,156,836) (21,851,141) (2,122,617) (2,428,322)Property, plant and equipment written off (14,846,492) (838,327) – –Write down of inventories (5,326,784) (11,227,923) – –Amortisation of prepaid lease payments (235,116) (251,643) – –Audit fee (102,700) (84,200) (25,000) (17,000)Rental of building (98,200) (123,400) – –Unrealised gain/(loss) on foreign exchange (13,605) 87,337 – –Equipment rental – (683) – –

Included in staff costs are EPF contributions made by the Group and the Company during the financial year of RM1,787,763 (2005: RM2,300,133) and RM216,287 (2005: RM264,553) respectively.


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8. FINANCECOST

TheGroup 2006 2005 (12Months) (13Months) RM RM

Interest expense on: Bankers acceptances 792,220 2,178,001 Short-term loan 504,377 870,046 Bank overdrafts 12,683 18,374 Bonds – 1,492,492 Long-term loans – 1,266,084 Onshore foreign currency loan – 231,872 Others 11,649 –

1,320,929 6,056,869

9. INCOMETAXEXPENSE


Estimated current tax payable: Current year/period 18,052,456 16,133,590 6,494,044 325,000 (Over)/Underprovision in prior year (248,179) (130,358) 19,923 1,367

17,804,277 16,003,232 6,513,967 326,367

Deferred tax (Note 21): Current year/period (8,048,712) (5,919,563) – – (Over)/Underprovision in prior year/period (365,432) 364,795 – –

(8,414,144) (5,554,768) – –

9,390,133 10,448,464 6,513,967 326,367

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A numerical reconciliation of income tax expense to profit before tax at the applicable statutory income tax rate to income tax expense at the effective income tax rate is as follows:


Profit before tax 81,356,476 90,139,832 23,109,657 1,139,451

Tax at the statutory income tax rate of 28% 22,779,813 25,239,153 6,470,704 319,046

Tax effect of expenses not deductible in determining taxable profit 544,371 188,166 23,340 5,954 Utilisation of unabsorbed investment tax and reinvestment allowances (12,940,674) (8,766,535) – –Tax effect of income not taxable in determining taxable profit (262,778) (6,345,162) – –Tax effect of double deduction on import insurance (116,988) (101,595) – –(Over)/Underprovision in prior year/period (613,611) 234,437 19,923 1,367

Tax expense for the year/period 9,390,133 10,448,464 6,513,967 326,367

As of December 31, 2006, a subsidiary company has unabsorbed investment tax and reinvestment allowances carried forward amounting to approximately RM55,548,800 (2005: RM100,602,000) and RM31,270,300 (2005: RM24,849,000) respectively, which subject to the agreement of the tax authorities, are available for set-off against future taxable income of the subsidiary company.

As of December 31, 2006, the subsidiary companies have the following tax-exempt income accounts amounting to about:

(a) RM102,198,000 (2005: RM55,981,300) arising from investment tax allowance claimed and utilised under the Promotion of Investment Act, 1986;

(b) RM2,113,900 (2005: RM2,113,900) arising from reinvestment allowances claimed and utilised under Schedule 7A of the Income Tax Act, 1967;

(c) RM349,000 (2005: RM349,000) arising from tax-exempt Malaysian interest income received; and

(d) RM274,000 (2005: RM269,000) arising from chargeable income waived in 1999 in accordance with Section 12 of the Income Tax (Amended) Act, 1999.

These tax-exempt income accounts, which are subject to agreement of the tax authorities, are available to frank the distribution of tax-exempt dividends to the Company.


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10. EARNINGSPERORDINARYSHARE

Basic earnings per share is calculated by dividing the net profit for the year/period by the weighted average number of ordinary shares in issue during the financial year/period.

2006 2005 (12Months) (13Months) RM RM

Net profit for the year 71,966,343 79,691,368

Weighted average number of ordinary shares of RM1 in issue 379,333,829 380,000,000

Basic earnings per share (sen) 18.97 20.97

11. PROPERTY,PLANTANDEQUIPMENT

TheGroup

Equipment, Plantand Buildings Furniture, Machinery Freehold UnderLong Plantand Motor Fixturesand Under Land Leases Machinery Vehicles Fittings Installation Total RM RM RM RM RM RM RM

CostBalanceat December1,2004 4,170,809 86,707,666 474,244,792 3,062,776 12,259,617 17,488,503 597,934,163Additions – 62,000 5,955,387 255,578 2,469,873 18,459,747 27,202,585Disposals/Write offs – – (1,466,390) (98,240) (222,114) – (1,786,744)Reclassification – – 25,797,487 – – (25,797,487) –

Balanceat January1,2006 4,170,809 86,769,666 504,531,276 3,220,114 14,507,376 10,150,763 623,350,004Additions – 88,000 8,028,304 56,224 2,765,335 67,727,286 78,665,149Disposals/Write offs – – (36,793,231) (138,942) (768,065) – (37,700,238)Reclassification – – 2,602,440 – – (2,602,440) –

Balanceat December31,2006 4,170,809 86,857,666 478,368,789 3,137,396 16,504,646 75,275,609 664,314,915

Accumulated DepreciationBalanceat December1,2004 – 27,440,347 211,284,429 2,630,179 3,946,012 – 245,300,967Charge for the period (13 months) – 3,768,558 30,980,208 173,315 1,260,242 – 36,182,323Disposals/Write offs – – (662,125) (50,757) (144,508) – (857,390)

Balanceat January1,2006 – 31,208,905 241,602,512 2,752,737 5,061,746 – 280,625,900Charge for the year – 3,175,527 26,540,333 92,178 1,844,332 – 31,652,370Disposals/Write offs – – (21,168,517) (133,541) (539,802) – (21,841,860)

Balanceat December31,2006 – 34,384,432 246,974,328 2,711,374 6,366,276 – 290,436,410

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Equipment, Plantand Buildings Furniture, Machinery Freehold UnderLong Plantand Motor Fixturesand Under Land Leases Machinery Vehicles Fittings Installation Total RM RM RM RM RM RM RM

Accumulated ImpairmentLossBalanceat December1,2004 – – 5,581,169 – 21,671 – 5,602,840Charge for the period – – – – – – –Reversal – – – – – – –

Balanceat January1,2006 – – 5,581,169 – 21,671 – 5,602,840Charge for the year – – – – – – –Reversal – – (1,000,000) – – – (1,000,000)

Balanceat December31,2006 – – 4,581,169 – 21,671 – 4,602,840

CarryingamountAsatDecember 31,2005 4,170,809 55,560,761 257,347,595 467,377 9,423,959 10,150,763 337,121,264

AsatDecember 31,2006 4,170,809 52,473,234 226,813,292 426,022 10,116,699 75,275,609 369,275,665

Buildings under long leases of a subsidiary company with carrying amount of approximately RM32,608,000

(2005: RM34,313,000) are pledged to certain licensed banks for credit facilities granted to the Group as disclosed in Notes 20 and 23.

Included in property, plant and equipment of the Group are fully depreciated property, plant and equipment with a cost of approximately RM37,420,520 (2005: RM38,404,000) which are still in use as of December 31, 2006.

During the financial year, borrowing costs of RM499,595 (2005: RM Nil) specifically related to plant and machinery under installation were capitalised at capitalisation rates of 4.45% to 4.57% (2005: Nil), within additions of the Group.

12. PREPAIDLEASEPAYMENTS

Prepaid lease payments for land under long lease are as follows:

TheGroup 2006 2005 RM RM

At beginning for the year/period (Note 29) 22,771,803 22,523,646 Additions – 248,157

22,771,803 22,771,803

Less: Cumulative amortisationAt beginning of year (2,527,232) (2,275,589) Amortisation for the year/period (235,116) (251,643)

(2,762,348) (2,527,232)

At end of year/period 20,009,455 20,244,571


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Prepaid lease payments relate to the lease of land for the Group’s factory and office buildings located in Ayer Keroh. The lease will expire in year 2092 and the Group does not have an option to purchase the leased land at the expiry of the lease period.

Land leased by the Group with carrying amount of RM14,973,824 (2005: RM15,149,987) are pledged to certain

licensed banks for credit facilities granted to subsidiary companies as disclosed in Note 20 and 23.

13. INVESTMENTINSUBSIDIARYCOMPANIES

TheCompany 2006 2005 RM RM

Unquoted shares - at cost 414,445,306 414,445,306

Details of the subsidiary companies, all incorporated in Malaysia, are as follows:

EffectivePercentage Ownership PrincipalActivities 2006 2005

Directsubsidiarycompanies

Ornasteel Enterprise Corporation 100% 100% Manufacturing and marketing of (M) Sdn. Bhd. steel products

Group Steel Corporation (M) 100% 100% Manufacturing and marketing of Sdn. Bhd. steel products

Indirectsubsidiarycompany Ornaconstruction Corporation Sdn. Bhd. 100% 100% Ceased operations (held through Ornasteel Enterprise Corporation (M) Sdn. Bhd.)

14. INVENTORIES


At cost: Raw materials 92,643,943 69,770,552 Finished goods 71,138,622 58,109,208 Consumables 15,788,910 18,943,536 Work-in-progress 45,384,101 15,769,576

224,955,567 162,592,872Less: Inventories written down (4,622,811) (11,227,923)

220,332,765 151,364,949

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15. TRADERECEIVABLES,OTHERRECEIVABLES,DEPOSITSANDPREPAIDEXPENSES


Trade receivables 108,280,220 139,943,742Allowance for doubtful debts (2,599,319) (10,559,221)

105,680,901 129,384,521

Trade receivables comprise amounts receivable for the sales of goods. The credit period granted on sales of goods is 30 days (2005: 30 days). An allowance has been made for estimated irrecoverable amounts from the sales of goods of RM2,599,319 (2005: RM10,559,221). This allowance has been determined by reference to past default experience of the Group.

The currency exposure profile of trade receivables of the Group is as follows:

Ringgit US Malaysia Dollar Total RM RM RM

2006 103,108,645 5,171,575 108,280,220

2005 130,253,834 9,689,908 139,943,742

Other receivables, deposits and prepaid expenses consist of:

TheGroup TheCompany 2006 2005 2006 2005 RM RM RM RM

Other receivables 6,507,822 21,282,607 – 357Prepaid expenses 1,772,239 2,401,117 8,000 –Refundable deposits 300,282 274,072 5,000 5,000

8,580,343 23,957,796 13,000 5,357

Other receivables of the Group comprise mainly advance payments to suppliers for purchase of property, plant and equipment, raw materials, spare parts and consumables.

16. HOLDINGCOMPANIESANDRELATEDPARTYTRANSACTIONS

The Company is a subsidiary of China Steel Asia Pacific Holdings Pte. Ltd., incorporated in the Republic of Singapore, and the directors regard China Steel Corporation, incorporated in Taiwan, as the ultimate holding company.

Amount due from ultimate holding company in 2005 of Ringgit Malaysia equivalent of USD735,563, which arose mainly from sales rebate receivable is unsecured and interest-free.

Amount due to ultimate holding company in 2006 of Ringgit Malaysia equivalent of USD 5,546, which arose mainly

from trade transactions is unsecured, interest-free and repayable within the normal trade terms of 7 days.


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Amount due to subsidiary company, eliminated on consolidation, which arose mainly from expenses paid on behalf and advances is unsecured, interest-free and has no fixed terms of repayment.

Amount due to other related companies in 2006 of Ringgit Malaysia equivalent of USD 1,908,436, which arose mainly from trade transactions is unsecured, interest-free and repayable within the normal trade terms ranging from 7 to 14 days.

Other than as disclosed elsewhere in the financial statements, the related parties and their relationship with the Company are as follows:

Nameofrelatedparties Relationship Chung Hung Steel Corporation A company in which China Steel Corporation is a substantial shareholder.

China Ecoteck Corporation A company in which China Steel Corporation is a substantial shareholder.

During the year, significant related party transactions are as follows:


UltimateholdingcompanyPurchases of raw materials 310,919,227 465,121,788 – – Technical fees payable 140,482 558,918 – –

SubsidiarycompaniesDividend income – – 20,200,000 –Management fee receivable – – 5,400,000 3,900,000

RelatedcompaniesPurchases of property, plant and equipment 6,112,717 7,791,535 – –Purchases of spare parts and consumables 1,541,036 3,047,669 – –Other sales commissions 394,762 305,516 – –Technical fees paid and payable – 196,165 – –

RelatedpartiesChung Hung Steel Corporation Purchases of raw materials 167,715,893 93,448,001 – –

China Ecoteck Corporation Purchases of property, plant and equipment – 1,751,850 – –

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17. FIXEDINCOMEFUND,FIXEDDEPOSITS,CASHANDBANKBALANCES


Cash and bank balances 40,268,268 11,777,633 131,212 70,207Fixed income fund with licensed financial institutions 30,388,892 – – –Fixed deposits with licensed banks 12,100,000 42,230,000 – –

82,757,160 54,007,633 131,212 70,207

Fixed income fund has no maturity period and a 7-day notice is required for withdrawals up to RM2,000,000 and a 30-day notice for withdrawals above RM2,000,000.

The maturity period for fixed deposits of the Group is between 30 to 60 days (2005: 30 to 60 days).

The interest rates are as follows:

TheGroup 2006 2005 % %

Fixed income fund with licensed financial institutions 2.79 - 3.33 NilFixed deposits with licensed banks 2.60 - 3.30 2.40 - 3.00Bank balances 2.00 2.00

The currency exposure profile of fixed income fund, fixed deposits and cash and bank balances of the Group is as follows:

TheGroup Ringgit US Malaysia Dollar Total2006 RM RM RM

Cash and bank balances 37,065,235 3,203,033 40,268,268Fixed income fund with licensed financial institutions 30,388,892 – 30,388,892Fixed deposits with licensed banks 12,100,000 – 12,100,000

79,554,127 3,203,033 82,757,160

2005

Fixed deposits with licensed banks 42,230,000 – 42,230,000Cash and bank balances 11,710,100 67,533 11,777,633

53,940,100 67,533 54,007,633

The cash and bank balances of the Company are all denominated in Ringgit Malaysia.


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18. SHARECAPITAL

2006 2005 RM RM

Authorised: 1,000,000,000 ordinary shares of RM1 each 1,000,000,000 1,000,000,000

Issuedandfullypaid: 380,000,000 ordinary shares of RM1 each 380,000,000 380,000,000

Treasuryshares (1,800,871) (1,800,871)

A total of 2,027,700 ordinary shares were repurchased from the open market for a total consideration of RM1,800,871 during the financial year. The share buy-back transactions were financed by internally generated funds and the shares purchased are being held as treasury shares.

19. RESERVES


Distributable reserve: Unappropriated profit 228,411,923 92,871,725 3,716,461 800,771

Non-distributable reserves: Share premium 32,441,139 32,441,139 32,441,139 32,441,139 Reserve on consolidation – 77,253,855 – –

32,441,139 109,694,994 32,441,139 32,441,139

260,853,062 202,566,719 36,157,600 33,241,910

Distributable reserves are those available for distribution by way of dividends. Taking into consideration the estimated tax credits and the prevailing tax rate applicable to dividends, the entire unappropriated profit of the Company as of December 31, 2006 is available for distribution by way of cash dividends without additional tax liabilities being incurred.

Share Premium

Share premium arose from the issuance of RM379,999,998 ordinary shares of RM1.00 each pursuant to the acquisitions of Ornasteel Enterprise Corporation (M) Sdn. Bhd. and Group Steel Corporation (M) Sdn. Bhd. at an issue price of approximately RM1.09 per ordinary share.

Reserve On Consolidation

Reserve on consolidation represents the excess of the net assets of subsidiary companies as at date of acquisition over their purchase consideration. With the adoption of FRS 3 – Business Combinations, reserve on consolidation has been reclassified to unappropriated profit during the financial year.

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At beginning of year 77,253,855 99,571,635Effect of changes in accounting policy (77,253,825) –Accretion – (22,317,780)

At end of year – 77,253,855

20. LONG-TERMLOANS


Outstanding loan principal 37,665,640 7,618,000Less: Portion due within one year - included under current liabilities – (7,618,000)

Non-current portion 37,665,640 –

The Group has two term loans:

(a) a term loan of RM45 million (2005: RM Nil) repayable in 10 equal quarterly instalments commencing two and a half years after the date of first drawdown; and

(b) a term loan of RM Nil (2005: RM7,618,000), which represents Ringgit Malaysia equivalent of USD Nil (2005: USD2,000,000), repayable in one lump sum payment in April, 2006.

The term loans bear interest at rates of 4.45% to 5.76% (2005: 3.32% to 5.54%) per annum and are secured by way of:

(a) a fixed charge on land and buildings under long leases of a subsidiary company with a carrying amount of approximately RM47,581,000 (2005: RM49,463,000) as of December 31, 2006;

(b) debentures covering fixed and floating charges over all the subsidiary company’s present and future assets;

(c) letter of support from the ultimate holding company; and

(d) corporate guarantee by the Company.

21. DEFERREDTAXLIABILITY


At beginning of year/period 62,428,917 67,983,685Transfer from/(to) income statements (Note 9) (8,414,144) (5,554,768)

At end of year/period 54,014,773 62,428,917


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The deferred tax liability of the Group is in respect of the tax effects of temporary differences arising from:

TheGroup DeferredTax Liability/(Asset) 2006 2005 RM RM

Property, plant and equipment 56,349,591 65,780,166Others (2,334,818) (3,351,249)

54,014,773 62,428,917

As mentioned in Note 3, deferred tax assets are generally recognised for all deductible temporary differences, unutilised tax losses and unused tax credits to the extent that it is probable that future taxable profits will be available against which the deferred tax assets can be utilised. As of December 31, 2006, the estimated amount of deferred tax asset calculated at current tax rate pertaining to a subsidiary company not recognised in the financial statements, is as follows:

2006 2005 RM RM

Unutilised tax losses 392,000 392,000Unabsorbed capital allowances 1,300 1,300

393,300 393,300

The unutilised tax losses and unabsorbed capital allowances of the subsidiary company are subject to the agreement by the tax authorities.

22. TRADEPAYABLES,OTHERPAYABLESANDACCRUEDEXPENSES

Trade and other payables comprise amounts outstanding for trade purchases and ongoing costs. The credit period granted to the Group for trade purchases ranges from cash terms to 60 days (2005: 60 days).

Other payables and accrued expenses consist of:


Other payables 14,644,663 14,485,918 104,558 118,566Accrued expenses 10,575,848 4,025,221 140,186 24,169

25,220,511 18,511,139 244,744 142,735

23. SHORT-TERMBORROWINGS


Bankers acceptances 41,300,000 35,700,000Bank overdrafts (Note 26) 385,990 89,403Short-term loan – 14,474,200

41,685,990 50,263,603

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The Group has bank overdrafts and other credit facilities amounting to RM254,000,000 (2005: RM333,361,000) obtained from licensed banks. These credit facilities bear interest at rates ranging from 3.46% to 7.5% (2005: 3.12% to 7.00%) per annum and are secured by a debenture covering fixed and floating charges over the present and future assets of the subsidiary companies and a corporate guarantee from the Company.

The currency exposure profile of short-term borrowings of the Group is as follows:

Ringgit US Malaysia Dollars Total RM RM RM2006

Bankers acceptances 41,300,000 – 41,300,000Bank overdraft 385,990 – 385,990

41,685,990 – 41,685,990

2005

Bankers acceptances 35,700,000 – 35,700,000Short-term loan – 14,474,200 14,474,200Bank overdraft 89,403 – 89,403 35,789,403 14,474,200 50,263,603

24. DIVIDENDS


First and final dividend paid – 5%, less tax for 2005 13,680,000 –

A first and final dividend of 5%, less tax, amounting to RM13,680,000, was approved by the shareholders in respect of the previous financial period and was paid by the Company during the financial year.

The directors do not recommend the payment of any dividend in respect of the current financial year.

25. FINANCIALRISKMANAGEMENTOBJECTIVEANDPOLICIES

The operations of the Group are subject to a variety of financial risks, including foreign currency risk, interest rate risk, credit risk, liquidity risk and cash flow risk. The Group has taken measures to minimise the Group’s exposure to risk and/or costs associated with the financing, investing and operating activities of the Group.

Foreign Currency Risk

The Group undertakes certain transactions in United States Dollar where the amounts outstanding are exposed to foreign currency risk. The Group monitors its foreign exchange exposure closely.

Interest Rate Risk

The Group is exposed to interest rate risk through the impact of rate changes on fixed income fund, fixed deposits, short-term borrowings and long-term loans as disclosed in Notes 17, 20 and 23.


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Credit Risk

The Group has no major concentration of credit risk and manage these risks by monitoring credit ratings and limiting the aggregate financial exposure to any individual counter party. The Group extends credit to its customers based upon careful evaluation of the customer’s financial condition and credit history.

The Group places its fixed income fund and fixed deposits with credit-worthy institutions.

Liquidity Risk

The Group practise prudent liquidity risk management to minimise the mismatch of financial assets and liabilities and to maintain sufficient credit facilities for contingent funding requirement of working capital.

Cash Flow Risk

The Group reviews its cash flow position regularly to manage its exposure to fluctuations in future cash flows associated with its monetary financial instruments.

Fair Values

The directors consider that the carrying amount of long-term loan recorded at amortised cost in the financial statements approximate their fair values as of December 31, 2006 as follows:

TheGroup Carrying Fair Amount Value RM RM

FinancialLiabilitiesLong-term loan (Note 20) 37,665,640 33,350,400

Long-Term Loan

The fair value of long-term loan was estimated using the discounted cash flow analysis based on current borrowing rates for similar types of borrowing arrangements and adjusted for inflation rate.

Cash and Cash Equivalents, Trade and Other Receivables, Trade and Other Payables, Inter-Company Indebtedness and Short-Term Borrowings

The carrying amounts approximate their fair values because of the short-term maturity of these instruments.

26. CASHANDCASHEQUIVALENTS

Cash and cash equivalents included in the cash flow statements comprise the following:


Fixed income fund with licensed financial institutions 30,388,892 – – –Fixed deposits with licensed banks 12,100,000 42,230,000 – –Cash and bank balances 40,268,268 11,777,633 131,212 70,207Bank overdrafts (Note 23) (385,990) (89,403) – –

82,371,170 53,918,230 131,212 70,207

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27. CAPITALCOMMITMENTS

As of December 31, 2006, the Group has the following capital commitments in respect of purchase of property, plant and equipment:


Approved and contracted for 15,519,000 54,093,000Approved but not contracted for 20,818,000 38,596,000

36,337,000 92,689,000

28. CONTINGENTLIABILITIES-UNSECURED

As of December 31, 2006, the Company has issued corporate guarantees totalling RM253,125,000 (2005: RM253,125,000) in respect of credit facilities granted by certain local and foreign financial institutions to its subsidiary companies. Accordingly, the Company is contingently liable to the extent of the amount of the credit facilities utilised by the subsidiary companies as of December 31, 2006.

29. EFFECTSONTHEADOPTIONOFNEWANDREVISEDFRSs

As mentioned in Note 2, the effects of the changes in accounting policies arising from the adoption of new and revised FRSs on the financial statements are as follows.

(a) EffectsonConsolidatedIncomeStatementfortheyearendedDecember31,2006

Increase/(Decrease) Before FRS3 FRS117 FRS139 After Adoption Note2(a) Note2(b) Note2(c) Adoption RM RM RM RM RM

Other operating income 8,676,553 – – 9,329,274 18,005,827Profit before tax 72,027,202 – – 9,329,274 81,356,476Income tax expense (6,777,936) – – (2,612,197) (9,390,133)Net profit for the year 65,249,266 – – 6,717,077 71,966,343

(b) EffectonConsolidatedBalanceSheetasofDecember31,2006

Increase/(Decrease) Before FRS3 FRS117 FRS139 After Adoption Note2(a) Note2(b) Note2(c) Adoption RM RM RM RM RM

Property, plant and equipment 389,285,120 – (20,009,455) – 369,275,665Prepaid lease payments on leasehold land – – 20,009,455 – 20,009,455Trade receivables 96,351,627 – – 9,329,274 105,680,901Deferred tax liability 51,402,576 – – 2,612,197 54,014,773Reserve on consolidation 77,253,855 (77,253,855) – – –Unappropriated profit 144,440,991 77,253,855 – 6,717,077 228,411,923


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(c) EffectsonConsolidatedIncomeStatementfortheyearendedDecember31,2005

The adoption of the revised FRSs did not result in material financial effects on the consolidated income statement for the 13 months ended December 31, 2005.

(d) EffectonConsolidatedBalanceSheetasofDecember31,2005

Before FRS117 FRS140 After Adoption Note2(b) Note2(c) Adoption RM RM RM RM

Property, plant and equipment 357,365,835 (20,244,571) – 337,121,264Prepaid lease payments on leasehold land – 20,244,571 – 20,244,571

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STATEMENTBYDIRECTORS

The directors of ORNASTEELHOLDINGSBERHAD, state that, in their opinion, the accompanying balance sheets and the related statements of income, cash flows and changes in equity are drawn up in accordance with the provisions of the Companies Act, 1965 and the applicable Malaysian Accounting Standards Board approved accounting standards in Malaysia so as to give a true and fair view of the state of affairs of the Group and the Company as of December 31, 2006 and of the results of their businesses and the cash flows of the Group and the Company for the year ended that date.

Signed on behalf of the Boardin accordance with a resolution of the Directors,

DR.CHUNG,YEONG-HUEI

CHANG,SHU-AUN

MelakaJanuary 12, 2007

I, TANCHINTENG, the Director primarily responsible for the financial management of ORNASTEELHOLDINGSBERHAD, do solemnly and sincerely declare that the accompanying balance sheets and the related statements of income, cash flows and changes in equity are, in my opinion, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960.

TANCHINTENG

Subscribed and solemnly declared by the abovenamed TAN CHINTENG at MELAKA this 12th day of January, 2007.

Before me,

COMMISSIONERFOROATHS

DECLARATIONBy The Director Primarily Responsible For The Financial Management Of The Company


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ANALYSISOFSHAREHOLDINGSAs At 20 April 2007

Class of Shares : Ordinary shares of RM1 eachNo. of Shareholders : 6,124Voting Rights : Every member of the Company present in person or by proxy shall have one vote on

a show of hand and in the case of a poll, shall have one vote for every ordinary share held. A proxy need not be a member.

DISTRIBUTIONSOFSHAREHOLDINGS

No.of No.ofHoldings Holders % Shares %

Less than 100 1 0.016 50 0.000100 – 1,000 1,003 16.378 971,750 0.2551,001 – 10,000 3,784 61.789 18,490,995 4.86610,001 – 100,000 1,158 18.909 36,905,325 9.711100, 001 – 18,999,999* 176 2.873 114,554,180 30.14519,000,000 and above** 2 0.032 209,077,700 55.020

Total: 6,124 100.00 380,000,000 100.00

Remark : * - Less than 5% of Issued Shares : ** - 5% and above of Issued Shares

SUBSTANTIALSHAREHOLDERS

DirectNo.of IndirectNo.ofShareholders SharesHeld %(1) SharesHeld %(1)

China Steel Asia Pacific Holdings 171,000,000 45.426 – – Pte. Ltd. (“CSAP”)Lembaga Tabung Angkatan Tentera 38,077,700 10.115 – –Lembaga Tabung Haji 18,999,700 5.047 – –(2) China Steel Corporation (“CSC”) – – 171,000,000 45.426(3) Ministry of Economic Affairs, – – 171,000,000 45.426 Taiwan (“MOEA”)

Notes: (1) Excludes 3,567,500 OHB shares bought back as at 3 May 2007 and retained as treasury shares. (2) Deemed interested by virtue of CSC’s substantial shareholdings in CSAP. (3) Deemed interested by virtue of MOEA’s substantial shareholdings in CSC.

LISTOFTOP30SHAREHOLDERS

No. Name Shareholdings %

1. China Steel Asia Pacific Holdings Pte. Ltd. 171,000,000 45.0002. Lembaga Tabung Angkatan Tentera 38,077,700 10.0203. Lembaga Tabung Haji 18,999,700 4.9994. HSBC Nominees (Asing) Sdn. Bhd. 11,859,000 3.120 Exempt AN for Morgan Stanley & Co. International Limited5. Pertubuhan Keselamatan Sosial 3,514,600 0.9246. DB (Malaysia) Nominee (Tempatan) Sdn. Bhd. 3,400,800 0.894 Exempt AN for Kenanga Investment Management Sdn. Bhd. (T95745/17210TST) 7. Malaysia Nominees (Tempatan) Sdn. Bhd. 3,247,000 0.854 Great Eastern Life Assurance (Malaysia) Berhad (Par 2) 8. Malaysia Nominees (Tempatan) Sdn. Bhd. 2,991,000 0.787 Great Eastern Life Assurance (Malaysia) Berhad (Par 1)

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No. Name Shareholdings % 9. Lim Seng Qwee 2,779,400 0.73110. HSBC Nominees (Tempatan) Sdn. Bhd. 2,561,900 0.674 Pledged Securities Account for Lim Kian Wat11. Malaysia Nominees (Tempatan) Sdn. Bhd. 2,512,000 0.661 Great Eastern Life Assurance (Malaysia) Berhad (Non Par 1) 12. SBB Nominees (Tempatan) Sdn. Bhd. 2,350,000 0.618 Employees Provident Fund Board13. Bank Kerjasama Rakyat Malaysia Berhad 2,000,000 0.526 as Beneficial Owner14. Permodalan Nasional Berhad 2,000,000 0.52615. Ornasteel Holdings Berhad 1,856,900 0.488 Share Buy Back Account16. Citigroup Nominees (Asing) Sdn. Bhd. 1,790,362 0.471 GSCO for Orange Capital Master I, Ltd. 17. Ornasteel Holdings Berhad 1,710,600 0.450 Share Buy Back Account18. Amanah Raya Nominees (Tempatan) Sdn. Bhd. 1,550,000 0.407 Public Islamic Opportunities Fund19. Mayban Nominees (Tempatan) Sdn. Bhd. 1,484,000 0.390 Mayban Trustees Berhad for MAAKL Balanced Fund (910170) 20. HDM Nominees (Tempatan) Sdn. Bhd. 1,060,000 0.278 Pledged Securities Account for Wong Yoke Fong @ Wong Nyok Fing (M09)21. Cimsec Nominees (Tempatan) Sdn. Bhd. 1,031,000 0.271 CIMB Bank for Tuanku Syed Sirajuddin Ibni Syed Putra Jamalullail (PB Retail Banking) 22. Cimsec Nominees (Tempatan) Sdn. Bhd. 1,000,000 0.263 CIMB for Koo Kow Kiang @ Ko Keck Ting (PB) 23. HSBC Nominees (Tempatan) Sdn. Bhd. 1,000,000 0.263 HSBC (Malaysia) Trustee Berhad for Amanah Saham Sarawak24. HSBC Nominees (Tempatan) Sdn. Bhd. 1,000,000 0.263 HSBC (M) Trustee Bhd for MAAKL Al-Faid (4398) 25. Malaysia Nominees (Tempatan) Sdn. Bhd. 900,000 0.236 Great Eastern Life Assurance (Malaysia) Berhad (LGF) 26. Md Nazir Bin Md Ali 900,000 0.23627. Nar Swee Kim 808,100 0.21228. Ng Teng Song 800,700 0.21029. Cheong Kwok Keong @ Lawrence Cheong 800,000 0.21030. Yeo Khee Huat 800,000 0.210

Total 285,784,762 75.206

SHAREHOLDINGSOFDIRECTORS

DirectNo.of IndirectNo.ofNames SharesHeld %(1) SharesHeld %(1)

1. Dr. Chung, Yeong-Huei 62,000 0.016 – –2. Huang, Tsong-Ying 80,000 0.021 – –3. Chang, Shu-Aun 80,000 0.021 – –4. Tan Chin Teng 80,000 0.021 60,000 0.0165. Pang Fee Yoon 20,000 0.005 – –6. Chong Khim Leong @ Chong Kim Leong 20,000 0.005 – –7. Brig. Gen. (R) Dato’ Mohd Zaaba @ Nik Zaaba Bin Nik Daud 20,000 0.005 – –

Note:(1) Excludes 3,567,500 OHB shares bought back as at 3 May 2007 and retained as treasury shares.

ANALYSISOFSHAREHOLDINGSAs At 20 April 2007

( cont’d )


��LISTOFPROPERTIES

Audited NetBook Value/ Land/ Prepaid Built-up Operating area Ageof LeaseasatLocation& (square Building 31.12.2006 YearofDescription ExistingUse Tenure metres) Year(s) (RM’000) Acquisition

Lot No. 5214, PN 7009, Industrial land 99-year lease 74,590/ 13 22,938 1992Mukim Bukit Katil, built upon with expiring on 36,334Daerah Melaka Tengah a factory block 20.01.2092 and an administration block

Lot PT No. 3701, Vacant 99-year lease 30,522/ Not 1,384 1992HS (M) 348, industrial land expiring on Not applicableMukim Bukit Katil, 20.01.2092 ApplicableDaerah Melaka Tengah

Lot PT No. 6108, Building land Freehold 11,347/ 9 4,171 1997HS (D) 30872, built upon with 1,029Mukim Bukit Katil, a temporaryDaerah Melaka Tengah showhouse

Lot PT Nos. 3698 Industrial land 99-year lease 74,805/ 9 47,581 1995and 3699, HS (M) built upon with expiring on 17,892346 and 347 a factory block 20.01.2092respectively, both ofMukim Bukit Katil,Daerah Melaka Tengah

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NOTICEOFTHIRDANNUALGENERALMEETING

NOTICE ISHEREBYGIVEN that the Third Annual General Meeting of OrnasteelHoldingsBerhad (“OHB” or the “Company”) will be held at The Auditorium of the Company, Level 4 Office Block, 180 Kawasan Industri Ayer Keroh, Ayer Keroh, 75450 Melaka, Malaysia on Friday, 15 June 2007, at 10.00 a.m., for the following purposes:

AGENDA

ASORDINARYBUSINESS

1. To receive the Audited Financial Statements for the financial year ended 31 December 2006 and the Reports of the Directors and Auditors thereon.

2. To declare a final dividend of 10% less 27% income tax in respect of the financial year ended 31 December 2006 as recommended by the Directors.

3. To approve the payment of Directors’ fees amounting to RM61,874 for the financial year ended 31 December 2006.

4. To re-elect the following Directors who retire in accordance with Article 128 and 133 of the Company’s Articles of Association and being eligible, have offered themselves for re-election:-

i. Dr. Chung, Yeong-Huei (Article 128)ii. Huang, Tsong-Ying (Article 128)iii. Brig. Gen. (R) Dato’ Mohd Zaaba @ Nik Zaaba Bin Nik Daud (Article 133)

5. To re-appoint Messrs. Deloitte & Touche as Auditors of the Company and to authorise the Board of Directors to fix their remuneration.

ASSPECIALBUSINESS

To consider and, if thought fit, to pass the following Ordinary/Special Resolutions, with or without modifications: - 6. OrdinaryResolution ProposedRenewalofShareholders’MandateforRecurrentRelatedPartyTransactionsofa

RevenueorTradingNature

"THAT, subject always to the Listing Requirements of Bursa Malaysia Securities Berhad (“Bursa Securities”), the Company and its subsidiaries and associates shall be mandated to enter into and to give effect to the recurrent related party transactions of a revenue or trading nature with the Related Party as set out in Section 2.1.4 of the Circular to Shareholders dated 24 May 2007 provided that such transactions and/or arrangements are:-

(a) necessary for the day-to-day operations;

(b) undertaken in the ordinary course of business and at arm’s length basis and on normal commercial terms which are not more favourable to the Related Party than those generally available to the public; and

(c) are not prejudicial to the minority shareholders of the Company

(collectively known as “the Proposed Shareholders’ Mandate”)

(Resolution1)

(Resolution2)

(Resolution3)

(Resolution4)(Resolution5)(Resolution6)

(Resolution7)

(Resolution8)


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AND THAT such approval shall continue to be in force only until:-

(i) the conclusion of the next Annual General Meeting (“AGM”) of the Company following the general meeting at which the Proposed Shareholders’ Mandate was passed, at which time it shall lapse unless by a resolution passed at such AGM, the mandate is renewed; or

(ii) the expiration of the period within which the next AGM of the Company is required to be held pursuant to Section 143(1) of the Companies Act, 1965 ("the Act") [but shall not extend to such extension as may be allowed pursuant to Section 143(2) of the Act]; or

(iii) revoked or varied by a resolution passed by the shareholders of the Company in a general meeting;

whichever is the earlier.

AND THAT the Directors of the Company be and are hereby authorised to complete and do all such acts and things (including executing all such documents as may be required) as they may consider expedient or necessary to give effect to the Proposed Shareholders’ Mandate.

AND THAT the estimates given in respect of the Recurrent Related Party Transactions specified in Section 2.1.4 of the Circular being provisional in nature, the Directors and/or any of them be and are hereby authorised to agree to the actual amount(s) thereof provided that such amount or amounts comply with the procedures set out in Section 2.1.5 of the Circular.”

7. OrdinaryResolution ProposedRenewalofAuthorityforthePurchasebytheCompanyofitsOwnShares

"THAT, subject always to the Act, the provisions of the Memorandum and Articles of Association of the Company, the Listing Requirements of Bursa Securities and the approvals of all relevant governmental and/or regulatory authorities, the Company be and is hereby authorised to purchase such amount of ordinary shares of RM1.00 each in the Company as may be determined by the Directors of the Company from time to time through the Bursa Securities upon such terms and conditions as the Directors may deem fit and expedient in the interest of the Company provided that:

(a) the aggregate number of shares purchased does not exceed ten per centum (10%) of the total issued and paid-up share capital of the Company as quoted on Bursa Securities as at the point of purchase;

(b) the maximum funds to be allocated by the Company for the purpose of purchasing its own shares shall not exceed the total retained earnings and share premium reserves of the Company at the time of the purchase(s); and

(c) at the discretion of the Directors of the Company, the shares purchased may be cancelled and/or retained as treasury shares and distributed as dividends or resold on the Bursa Securities;

AND THAT such authority conferred by this resolution shall commence immediately upon the passing of this resolution until:- (i) the conclusion of the next AGM of the Company following the general meeting at which

such resolution was passed at which time it shall lapse unless by a resolution passed at such AGM, the authority is renewed, either unconditionally or subject to conditions; or

(Resolution9)

NOTICEOFTHIRDANNUALGENERALMEETING( cont’d )

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(ii) the expiration of the period within which the next AGM of the Company is required to be held pursuant to Section 143(1) of the Act [but shall not extend to such extension as may be allowed pursuant to Section 143(2) of the Act]; or

(iii) revoked or varied by a resolution passed by the shareholders of the Company in a general meeting;

whichever occurs first.

AND THAT the Directors of the Company be and are hereby generally empowered to do all acts and things to give full effect to the aforesaid purchase with full powers to assent to any conditions, modifications, revaluations, variations and/or amendments (if any) as may be imposed by the relevant authorities and/or to do all such acts and things as the Directors may deem fit and expedient in the best interest of the Company.”

8. SpecialResolution ProposedAmendmentstotheArticlesofAssociation(“ProposedAmendments”)

“THAT approval be and is hereby given for the Articles of Association of the Company to be amended in the manner as set out in Section 2.3 of the Company’s Circular to Shareholders dated 24 May 2007 AND THAT the Directors of the Company be and are hereby authorised to do all acts, deeds and things as are necessary and/or expedient to give effect to the Proposed Amendments with full powers to assent to any conditions, modifications and/or amendments as may be required by any relevant authorities.”

9. To transact any other business of which due notice shall have been given in accordance

with the Act.

NOTICEOFDIVIDENDENTITLEMENTANDPAYMENT

NOTICEISALSOHEREBYGIVEN that a final dividend of 10% (less income tax of 27%) in respect of the financial year ended 31 December 2006, if approved by the shareholders at the Third Annual General Meeting of the Company, will be paid on 12 July 2007 to the shareholders whose names appear on the Record of Depositors of the Company at the close of business on 29 June 2007.

A Depositor shall qualify for entitlement to the dividend only in respect of :-

a. shares transferred into the Depositor’s Securities Account before 4.00 p.m. on 29 June 2007 in respect of ordinary transfers; and

b. shares bought on the Bursa Malaysia Securities Berhad on a cum-entitlement basis according to the Rules of Bursa Malaysia Securities Berhad.

By Order of the BoardORNASTEELHOLDINGSBERHAD

WONGWEIFONG (MAICSA 7006751)LAMSOOKCHING (MAICSA 7006942)Company Secretaries

Melaka24 May 2007

(Resolution10)

( cont’d )NOTICEOFTHIRDANNUALGENERALMEETING


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NOTES:

i. A member of the Company entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and vote in his/her stead. A proxy need not be a member of the Company and the provision of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company.

ii. Where a member appoints more than one proxy, the appointments shall be invalid unless he/she specifies the proportions of his/her holding to be represented by each proxy.

iii. The instrument appointing a proxy or proxies, in the case of an individual, shall be signed by the appointer or his/her attorney and in the case of a corporation, either under seal or under the hand of a duly authorized officer or attorney.

iv. To be valid, the instrument appointing a proxy or proxies shall be deposited at the registered office of the Company at 49-B Jalan Melaka Raya 8, Taman Melaka Raya, 75000 Melaka not less than forty-eight (48) hours before the time set for holding the meeting or any adjournment thereof.

Explanatory Notes on Special Business:-

Resolutions No. 8 - 10

Shareholders are advised to refer to the Circular to Shareholders dated 24 May 2007 which was circulated together with the Annual Report 2006 when considering Resolutions No. 8 - 10.

Ordinary Resolution No. 8

The Ordinary Resolution No. 8 proposed under Item No. 6, if passed, will authorise the Company and its subsidiaries (the "OHB Group") to enter into recurrent related party transactions of a revenue or trading nature which are necessary for the OHB Group's day-to-day operations with the respective related parties, subject that the transactions are transacted in the ordinary course of business and on normal commercial terms which are not more favourable to the related parties than those generally available to the public and are not to the detriment of the minority shareholders of the Company.

Ordinary Resolution No. 9

The Ordinary Resolution No. 9 proposed under Item No. 7, if passed, will empower the purchase by the Company of up to 10% of its issued and paid-up share capital through the Bursa Securities.

Special Resolution No. 10

The Special Resolution No. 10 proposed under Item No. 8, if passed, will incorporate the latest amendments on the Listing Requirements of Bursa Securities.

NOTICEOFTHIRDANNUALGENERALMEETING( cont’d )

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STATEMENTACCOMPANYINGNOTICEOFANNUALGENERALMEETING

A. Directorsstandingforre-electionandre-appointment

1. Dr. Chung, Yeong-Huei (Article 128)2. Huang, Tsong-Ying (Article 128)3. Brig. Gen. (R) Dato’ Mohd Zaaba @ Nik Zaaba Bin Nik Daud (Article 133)

B. DetailsofDirectorswhoarestandingforre-electionandre-appointment

Details of the Directors who are standing for re-election and re-appointment are set out in the Directors’ profile appearing on pages 4 to 6 of this Annual Report while their securities holdings are set out in the Analysis of Shareholdings – Shareholdings of Directors on page 63 of this Annual Report.

C. DetailsofAttendanceofDirectorsatBoardmeetings

A total of 5 Board meetings were held during the financial year ended 31 December 2006. Details of attendance of Directors holding office at the end of the financial year ended 31 December 2006 are on page 10 of this Annual Report.

D. Date,TimeandPlaceoftheAnnualGeneralMeeting

Date : Friday, 15 June 2007Time : 10.00 a.m.Place : The Auditorium of the Company Level 4 Office Block 180 Kawasan Industri Ayer Keroh Ayer Keroh 75450 Melaka, Malaysia

(This page has been intentionally left blank)

✄FORMOFPROXY

ORNASTEELHOLDINGSBERHAD (640357-X) (Incorporated in Malaysia)

Numberofsharesheld

I/We ........................................................................................................ (NRIC/Company No: .................................. ) (full name in capital letters)

of................................................................................................................................................................................. (full Address)

being (a) member(s) of ORNASTEELHOLDINGSBERHAD, hereby appoint ................................................................

................................................................................................................ (NRIC No: .................................................. ) (full name in capital letters)

of................................................................................................................................................................................. (full Address)

or failing him/her, .................................................................................... (NRIC No: .................................................. ) (full name in capital letters)

of................................................................................................................................................................................. (full Address)

or failing him/her, the Chairman of the Meeting as my/our proxy to vote for me/us and on my/our behalf at the Third Annual General Meeting of the Company to be held at the Auditorium of the Company, Level 4 Office Block, 180 Kawasan Industri Ayer Keroh, Ayer Keroh, 75450 Melaka, Malaysia on Friday, 15 June 2007, at 10.00 a.m. and at any adjournment thereof.

Please indicate with an “X” in the appropriate spaces below how you wish your votes to be cast. If no specific direction as to voting is given, the Proxy will vote or abstrain from voting at his/her discretion.

NO. RESOLUTIONS FOR AGAINST

1. To receive the Audited Financial Statements for the financial year ended 31 December 2006 and the Reports of Directors and Auditors thereon.

2. To declare a final dividend of 10% less 27% income tax.

3. To approve the payment of Directors’ fees.

4. To re-elect Dr. Chung, Yeong-Huei.

5. To re-elect Mr. Huang, Tsong-Ying.

6. To re-elect Brig. Gen. (R) Dato' Mohd Zaaba @ Nik Zaaba Bin Nik Daud.

7. To re-appoint Messrs. Deloitte & Touche as auditors of the Company and to authorise the Directors to fix their remuneration.

8. Proposed Renewal of Shareholders’ Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature.

9. Proposed Renewal of Authority for the Purchase by the Company of its own Shares.

10. Proposed Amendments to the Articles of Association.

Signed this ....................................... day of ........................................... 2007

.................................................................... ............................................................. Signature Common Seal

Notes:-

i. A member of the Company entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and vote in his/her stead. A proxy need not be a member of the Company and the provision of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company.

ii. Where a member appoints more than one proxy, the appointments shall be invalid unless he/she specifies the proportions of his/her holding to be represented by each proxy.

iii. The instrument appointing a proxy or proxies, in the case of an individual, shall be signed by the appointer or his/her attorney and in the case of a corporation, either under seal or under the hand of a duly authorized officer or attorney.

iv. To be valid, the instrument appointing a proxy or proxies, shall be deposited at the registered office of the Company at 49-B Jalan Melaka Raya 8, Taman Melaka Raya, 75000 Melaka not less than forty-eight (48) hours before the time set for holding the meeting or any adjournment thereof.

To: The Company Secretary OrnasteelHoldingsBerhad 49-B Jalan Melaka Raya 8 Taman Melaka Raya 75000 Melaka Malaysia

Stamp

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A n n u a l R e p o r t


180, Kawasan Industri Ayer Keroh Ayer Keroh, 75450 Melaka Malaysia

Tel : 06 231 9990 Fax : 06 231 5310 Email : [email protected]


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