Business Overview

 

 

4. INFORMATION ON HTVB GROUP….. confd 4.3 Restructuring and Listing Scheme The listing of HTVB was approved by SC on 6 September 2001 and 29 January 2003; M1Tl on 5 April 2000,23 December 2000,24 November 2001 and 3 December 2002; and F’C on 24 April 2000, 16 October 2000. 11 December 2001 and 18 November 2002. In conjunction with~ and as an integral part of the listing and quotation for the entire enlarged issued and paid-up share capital of HTVB on the Main Board of the KLSE, the Company undertook a restructuring scheme whlch involved the following:­(i) Incorporation of Revaluation Surplus As part of the Restructurlng and Listing Scheme, HTP, a wholly-owned subsidiary company of HTH, and THH incorporated a revaluation surplus arising from the revaluation of landed propertles in the amount of RM17,491,221 prior to the Acquisitlons. The details of the Incorporation of Revaluation Surplus are set out as follows:­OwnerlTitleJL.ocation  Net book value C~NBV”) @ 31.7.2000 (RM)  Open market value (valuation date) (RM)  Revaluation surplus (RM)  ta:f Lot 6096, Mukim of Kapar District of K~ang, Selangor Lot 60951 Mukim of Kapar District of Klang. Selangor Lot 169, Mukim of Plentong District of Johor Bahru] Johor Lot 215, Mukim of Senai ~ Kulai District of Johor BahrU t Johor … Lot 2161 Mukim of Senal ~ Kulai Dlstrict of Johor Bahru1 Johor  13,6431 781 12,159t210 621 1 i76 1,826t 882 11 8261 882  18,300,000 (12.10~ 1999) 26,000,000 (12.10.1999) 850,000 (13.10.1999) 1,650,000 (13.10.1999) 11 650,000 (13.1O. 1999)  1\ 41 451 1219 1\ 13,163,790 /I, 2181 824 (176,882) (176,882)  17t 480,069  THH Lot 296, Mukim 13 District of Seberang Perai Tengah. Pulau Pinang  110581 848  11070,000 (8. 10 .1999}  11 t 152  17,491 1 221
1\ After deducting provision for real property gain tax of RM892) 000 (in aggregate). Subsequently disposed of for cash on 24 June 2003 at a disposal price of RM1, 650,000. (ii) Acquisitions On 27 March 2003, HTVB completed the acquisition of the entire issued and paid-up share capital of HTH, THH, APM 1 HMSB and SDSB for a total consideration of RM99,596,759, satisfied by an issuance of a total of 150J 947,808 new Shares in HTVBl credlted as fully paid at an issue price of approximately RMO.66 per Share. The respective purchase constderation were arrived at based on the audited consolidated NTA of each of the respective companies as at 31 July 2000 after adjusbng for any surplus arising from the revaluation of 1anded properties in (i) aboV8r 40 4. INFORMATION ON THE HTVB GROUP…..confd No. of ordinary  Purchase  No. of new  Target  shares of RM1.00  consideration  HTVB Shares  company  0/0 acquIred  each acquired  (RM)  issued  HTH  100  1:2,000,000  43l 211,494  651490t 890  THH  100  2.400,002  41 784,514  71 251,359  APM  100  3t 904,OO2  29,509,489  44t 724.273  HMSB  100  6,000]012  20,537]252  31 ~ 126,045  BOSB  100  1,2001000  1,5541010_y~.~. 2,355,241  TOTAL  99~596J759  150,947,808
The number of HTVB Shares issued to the respectlve vendors pursuant to the Acquisitions were as follows:­No. of new HTVB Shares issued Vendors Total__M_~T_~__.,””~”_!_””.”. T9:~642 :~::02HMSB. ‘t””.”._.!’PM “wh’ Au Mow Klck 600]944 Helen Constantia Lee Hie Ling 1,036.940 ~ • 98]135 11 1351075 Jasmi bin Salleh 3,274t 544 ~ .: 1t603,841 981 1 353 5.8591738 KHL Sdn Bhd 3,516,064 1,775,37~:,,~i 1,556,299 ~ 21 t3541008 28t 201,747y Kok Kim Sang -11556,299 ~ –1,556,299 Kok Kim Swee i -3,112,598
~ ~ 3.112,5g~ i~~1Kuah Ah Tee 638,536 6381536 Kua Hock Lai 11146.092 9,813 13,90415661,063.53~i~;_~ 11 1685.127 Kua Lai Shan @ Kuah Ah Kok 7,781 1527 ~, 7,781 ’52~ i:Kua Swee Kiat 545,757 545t757 Kua Swee Leong 545,757 545,757 Law Soak Teng 327,454 1~260t 161 1,587,615 Law Tiam Siang 687,360 6871360 Lim Ah Eng
31 2,749,442 41386]745 Lim Chong Juan 98,135 534,741 Lu Kang Eing 1,832,961 Mirzan bin Mahathir 11 t2561247 11 ~2561247 Mohamed Nizam bin Abdu’ Razak 11,2561247 11,256,247 Phang Chin Khiong 327 1454 1]260,161 11 5871615 Tan Hai Yong 687,360 6871360 Tan Sri Data’ Alwi bln Jantan 22,587,513 26,788,464 Tan Yuen Hong 1,091,515 1,091,515 Tee Tuang Siang 1,637]272 916,481 2,6741609 Teoh Peir Song 11091,515 1,091 1515 Tuan Hajj Hashim bin Omar 2,046,590 2,046,590 Un~ted Coconut Fibre Products Sdn Bhd 11 657t 503 17,776,805 Wong Kon Siang 687,360 687]360 Yoong Siew Ying 1,091,515 TOTAL 65,490,890 31,126,045 44t7241273 2,355,241 150,947,808 [The rest of this page is intentionally left blank. 1 41 4. INFORMATION ON THE HTVB GROUP~….conrd (iii) Acquisition of Properties On 29 May 2003~ HTVB completed the acquisition of the Properties from KHL Sdn Bhd and United Coconut Fibre Products Sdn Bhd for a total consideration of RM62J900,OOOr satisfied by an issuance of 84,652,188 new Shares in HTVB, credited as fUUy paid at an issue pr[ce of approximately RMO.74 per Share4 The respective purchase consideration was arrlved at based on the independent valuation of the market values of the Properties at the respective valuation dates stated below:­Properties acquired from  Description  Open market value (vaIuation date) RM  No. of Shares issued  United Coconut Fibre Products Sdn Bhd  Lot 6085 District of Klang  21,100t OOO (26.04.2000)  28~396,839  KHL Sdn Bhd  Lot 6088 District of Klang  191 800,000 (25.04.2000)  26.6471 270  TOTAL  Lot 6089 District of Klang  221 000,000 (11 .05.2.92.91 62,9001000  29,608.079 841652,188
The Properttes were previously leased to APM and HMSB. Lot 6089 was acquired by HTVB free from I~ens and encumbrances. Prior to the Acquisiton of Properties, Lot 6085 and Lot 6088 were orlginally charged to RHB Bank Berhad and Alliance Bank Malaysia Berhad respectively for various loan facilities granted earlier to HTH and APM. Hence, Lot 6085 and Lot 6088 were acquired from the vendors, namely United Coconut Fibre Products Sdn Bhd and KHL Sdn Bhd, subject to the existing charges in favour of RHB Bank Berhad and Alliance Bank Malaysia Berhad. (iv) IPO The final stage of the Restructuring and Listing Scheme involves an issuance of 91,200l 000 new Shares in HTVB at an issue price of RMO.55 sen Share pursuant to the IPO. The total 91 ,200,000 Shares pursuant to the IPO comprises the following:­(a) Restricted ‘ssue HTVB will issue 14,800,000 new Shares or 4.52% of the enlarged issued and paid-up share capital of RM163,700rOOO comprising 327,400~OOO Shares in HTVB to nominated Bumiputera investors approved by MITI in order to meet Bumiputera shareholding requirements. (b) Private Placement by P’acement Agents HTVB will place out 66,400,000 new Shares or 20.28% of the enlarged issued and paid-up share capital of RM163,700,000 comprising 327l 400,000 Shares in HTVB to private investors (which include business associates of the Group comprising customers and suppliers) in order to meet Bumiputera shareholding and public spread requlremants. 42

 

4. INFORMATION ON THE HTVB GROUP….,cont’d (b) HTP HTP ~ncorporated in Malaysia under the Companies Act, 1965 on 26 August 1994 as a prlvate limited company under the name of Istimewa Ria Sdn. Bhd. It assumed its present name on 23 April 1997. HTP is principally engaged in property lnvestment, HTP does not have any subsid~ary or associated company. Its present authorised and paid-up share capital are as follows:­No. of ordinary  shares of  Par value  Amount  RM1.00 each  (RM)  (RM)  allotted  Authorised  1001000  1.00  100.000  Issued and paid-up  100,000  1-00  100~OOO
The changes in its issued and paid-up share capital are set out below:­No. of  ordinary  Date Qf  shares of  Par Value  Consideration  Total  Allotment  RM1.00 each  (RM)  (RM)  allotted  26.08.1994  2  1.00  Subscribersl shares  22.09.1994  99,998  1.00  Cash
The f1nancial record of HTP based on its audited accounts for the past five(5)  financial years ended 31  July 2002 and the six(6)-month period ended 31  January 2003 are as follows:~  6  months  ended  Financial year ended 31 JUly  1998  1999  2000  2001  2002  31.01 L03  RM’OOO  RM’QOO  RM’OOO  RM’QOO  RM’OOO  RM’OOO  Rental income  1,200  1,200  1,200  1,200  1,200  600  EBIDTA  1]083  1,052  1,027  904  1,005  531  Depreciation  (270)  (283)  {282)  (283)  (283)  (142)  Amortisation  – ~  – .  – – Operating profit  813  769  745  621  722  389  Interest expense  (1,277)  (1 1 047)  (696)  (496)  (243)  (62)  (Loss)/Profit before EI  (464)  (278)  49  125  479  327  EI  – &  – 1t212  (356)  – (Loss)/Profit before taxation  (464)  (278)  49  1,337  123  327  Taxation  – ~  (36)  (139)  (216)  1130)  (Loss)/Profit after taxation  (464)  (278)  13  1r 198  (93)  197  Paid-up capital (~OOO)  100  100  100  100  100  100  Gross EPS (RM)  (4.64)  (2.78)  0_49  13.37  1.23  “6.54  Net EPS (AM)  (4.64)  (2.7B)  o. 13  11.98  (0-93)  1\ 3.94  Gross dividend rate (%)  – – – .  .  – 1\  Annualised.  The commentaries  on the financial performance of HTP is set out in  Paragraph  6.4 of  the  Accountants’  Report  in  Section  9  of  this  Prospectus.  46
4. INFORMATION ON THE HTVB GROUP4.4..confd (c) HTSM HTSM was incorporated in Malaysia under the Companies Actt 1965 on 26 November 1993 as a private limited company under the name of Modern Essential Sdn Bhd. It assumed its present name on 13 May 1996. HTSM is princlpaHy involved in manufacturing and deal[ng in scaffolding components and accessories. HTSM does not have any subsidiary or associated company. Its present authorised and paid-up share capital are as follows:­No. of ordinary  Par value  Amount  shares of  (RM)  (RM)  RM1.00 each  allotted  Authorised  5,000,000  1.00  5l 000,OOO  Issued and paid-up  2l 500,OOO  1.00  21 5001000
The changes in its issued and paid-up share capital are set out below;­Date of No. of Par value Consideration Total Allotment ordinary (RM) (RM) shares of RM1.00 each allot1ed 26.11.1993 2 1.00 Subscribers’ shares 2 01,08.1995 72tOOO 1.00 Cash 721002 24.08.1995 10StOOO 1.00 Cash 177,002 24.08.1995 249,998 1.00 Casll 427,000 07.09.1995 40,000 1.00 Casll 467,000 23.04.1996 33,000 1.00 Cash 500,000 10.05.1996 801000 1.00 Cash 580,000 10.07.1996 50,000 1.00 Cash 6301000 24.07.1996 521000 1.00 Cash 682,000 16.09.1996 521 000 1.00 Cash 7341000 30.09.1996 52,000 1.00 Cash 7861000 18.10.1996 381 000 1.00 Cash 8241000 24.10,1996 10,000 1.00 Cash 8341000 11.01,1997 173,000 1.00 Cash 1,007,000 28.02.1997 363,000 1.00 Cash 1t37O,OOO 06.03.1998 111301000 1.00 Cash 2,500,000 [ The rest of this page is intentionally left blank. ] 47

 

 

4. INFORMATION ON THE HTVB GROUP …..confd The changes in its issued and paid-up share capital are se1 out below:~ Date of allotment  No. of  Par value  Consideration  Total  ordinary  (RM)  (RM)  shares of  RM1.00 each  allotted  24.06,1993  2  1.00  Subscrlbers1shares  2  29.07.1994  10j OOO  1.00  Cash  10,002  10.08.1994  30]000  1.00  Cash  40,002  25,08.1994  1,8001000  1.00  Cash  1~8401002  24.11.1994  600 1000  1.00  Cash  2,4401002  27.12.1995  488t OOO  1.00  Bonus Issue  2,9281 002  28.02.1996  976tOOO  1.00  Bonus Issue  3,9041002
The financial record of APM based on its audited accounts for the past five(5) financial years ended 31 July 2002 and the six(6)..month period ended 31 January 2003 are as follows:· Financial year ended 31 July 1998 1999 2000 RM1000 RM’OOO RM’OOO
Revenue 174,919 172,074 254,069 EBIDTA 181960 18,288 20,277 Depreciation (3,546) (3~739) (3,844) Amortisation . -­Operating profit 15,414 141549 16,433 Interest expense (11 t355) (8,553) (6,014) PBT 4,059 5,996 101419 Taxation (13) (1 r352)
~ PAT 4 1046 5,996 91067 Paid-up capital COOO) 3,904 3,904 3t904 Gross EPS (RM) 1.04 , .54 2.67 Net EPS (RM) 1.04 1.54 2.32 .Gross dividend rate (0/0) 7~O 7.0 tax exempt
A Annu8/ised. The commentaries on the financial performance of APM is set out in Paragraph 6.9 of the Accountants’ Report in Section 9 of this Prospectus, [ The rest of this page is intentionally teft blank. ] 2001 RM’OOO 263,916 21.897 (4r556) . 171341 (61547) 10,794 (1 1 207) 9,587 31 904 2.76 2.46 5.0  2002 RM1000 322,266 24,282 (4,798) . 19,484 (5]917) 131 567 (3,765) 91802 3t 904 3.48 2.51 5,0  6 months ended 31.01.03 RM’OOO 1531664  16t150 (2,447) – 13,703 (2,747)  1O~956 (31617)  7,339  31904 1’15.61 A 3.76 ~
53

 

4. INFORMATION ON THE HTVB GROUP.. ~ ..conrd The changes in its issued and pald·up share capital are set out below:­Date of allotment  No. of  Par value  Consideration  Total  ordinary  (RM)  (RM)  share$ of  RM1.00 each  allotted  16.09.1987  2  1.00  Subscrlbers~ shares  2  13,11.1987  191998  1.00  Cash  20,000  08.08.1992  50,000  1.00  Cash  70,000  05.02.1993  500,000  1,00  Cash  570,000
The financial record of HISS based on its audited accounts for the past five(5) financial years ended 31 July 2002 and the six(6)·month period ended 31 January 2003 are as follows:­ Financial year ended 31 JUly  1998  1999  2000  2001  2002  RM’OOO  RM’OOO  RM~OOO  RM’OOO  RM’OOO  Revenue  41417  1~700  2,147  1,807  2~O48  EBIDTA  387  173  218  119  228  Depreciation  (264)  (123)  (59)  {56}  (5)  Amortisation  – .  – – .  Operating profit  123  50  159  63  223  ~Ilterest expense  .  – – – .
6 months ended 31.01 r03 RM’OOO 1~O59 117 {1 } -116 -P8T 123 50 159 63 223 Taxation (58) -(30) (9) (56) (29) 0)
PAT  65  50  129  54  167  Pajd-up cap~tal CODO)  570  570  570  570  570  Gross EPS (RM)  0.22  0.09  0.28  0.11  0.39  Net EPS (RM)  0.11  0.09  0.23  0.09  0.29  Gross dividend rate (0/0)  – ~  – .  526
Note:­A AnnuaHsed. The commentaries on the financial performance of HISB is set out in Paragraph 6.11 of the Accountants! Report in Section 9 of this Prospectus. BDSS BDSS was incorporated ,n Malaysia under the Companies Actl 1965 on 17 July 1993 as a private Hmited company under the name of Brilliant Decade Sdn Bhd. 1t assumed its present name on 9 November 1994. BOSS is principally invo!ved in the provision of transportation of goods by’orries. BOSS does not have any subsidiary or associated company. 87 570 J\ 0,41 f\ 0.31 -56
4. INFORMATION ON THE HTVB GROUP…..confd Its present authorised and paid-up share capital are as follows:­No. of ordinary  Par value  Amount  shares of  (RM)  (RM)  RM1.00 each  allotted  Authorised  5,0001000  1.00  5,000,000  Issued and paid-up  1,200,000  1.00  1,200,000
The changes in its issued and paid-up share capital are set out below:­Date of allotment  No. of  Par value  Consideration  Total  ordinary  (RM)  (RM)  shares of  RM1.0D each  allotled  17.07.1993  2  1.00  Subscribers’shares  2  22.11,1993  5,000  1.00  Cash  5.002  18.02,1994  10,000  1.00  Cash  15t OO2  23.05.1994  100,000  1.00  Cash  115,002  23.08.1994  1,084,998  1.00  Cash  1.200,000
The financial record of BOSB based on its audited accounts for the past five(5) financ~al years ended 31 July 2002 and the six(6)-mon1h period ended 31 January 2003 are as follows:­Financial year ended 31 July 1998 1999 2000 2001 RMJOOO RM’OOO RM’OOO RM’OOO
Revenue 1,611 11767 2t033 21 151 EBIDTA 432 479 401 423 Depreciation (361) (370) (368) (308) Amortisation –­~ Operating profit 71 109 33 115 Interest expenS8 (34) (59) {25) (5) PBT 37 50 8 110 Taxation (36) 10 (5) (29) PAT 1 60 3 81
Paid-up capital (‘000) 11200 1,200 1,200 1,200 Gross EPS (RM) 0.03 0.04 0.007 0,09 Net EPS (RM) 0.0008 0.05 O~OO3 0,07 Gross dividend rate (Ok) . 7.0 -5.0
Note:­A AnnuaJised. The commentaries on the financial performance or BDSB is set out in Paragraph 6.12 of the Accountants’ Report in Section 9 of this Prospectus. 57 6  months  ended  2002  31.01.03  RM1000  RM1000  21377  1,271  506  320  (329)  (164)  .  y  177  156  (1 )  (2)  176  154  (32)  {51 }  144  103  1,200  1,200  0.15  “0.26  0.12  A 0.17  5.0  –

 

 

 

4. INFORMATION ON THE HTVB GROUP … ..confd Currently, the Group also sources a substantial portion of its raw materials namely steel coils from Megasteel Sdn Bhd. Backed by over 30 years of experience of the senior management in the iron and steel industry, the Group has established aU the vital link-ups and business contacts, especially with its cus10mers and suppliers. These Unk-ups enable the Group to manage its raw materials prices. The Group closely monitors steel prices on a daily basis. This system has given the HTVB Group a cost advantage over other iron and steel manufacturers. (v) Quality Assurance and Control Precision is a highly critical process in the manufacture of Iron and steel products. A slight departure from a given specification order from customers’ requirements will produce an unacceptab1e product because it either would not be able to compfement the other products that the customers have or is unacceptab}e for contractual reasons. Stringent quality standards must therefore be adhered to in the manufacturing operatIons. Following this~ quality assurance procedures are infused at each and every step of the production process. The quality control team, comprIsIng 4 key members) oversees the quality control of the productions. Meetings between the Quality Control Departmen1 and the heads of the Production Departmen1, Materials Control Department. and the Sales and Marketing Department are held on a weekly basis to evaluate the production reports, and to discuss ways to improve the quality of the Group’s products~ Prior to the commencement of the manufacturing process, the Group exercises much care when sourcing for raw materials which undergo detailed scrutiny from the management in terms of product quality~ costJ availability, and deliverability. The quality inspectors are assigned the task 10 ensure that the mother coils that form the bulk of the raw materials meet international quality standards (i.e. British Standard -BS. Japanese Industrial Standard ­JIS). The raw materials are also visually inspected by the Group’s quality control personnel upon arrival at the Group’s premises. Visuar inspection includes checking inter-alia that the raw materials come with a mill certificate, tha1 the seal is not broken, and tha1 there are no white spots which may indica1e the onset of corrosion. Throughout the manufacturing process, quality control personnel will continue 10 conduct various tests on the steel mainly for its tensile s1rength and yield. The f~nished produc1s are also randomly tested for its chemical composition and steel con1ent. This system of constant testing reduces rejection rates or wastages, and saves re-manufacture costs in the long run. These rigorous tests ensure that the Group produces quality products, meet the customers’ specific requirements and in accordance with international quality standards and specifications. [ The rest of this page is inten1ionally left blank. ] 62
4. INFORMATION ON HTVB GROUPrrr~. cont’d (vi) Patents, Trademarks. Licences and Franchises The iron and steel industry is a matured indus1ry where innova1ions are rare. As such, there are no patent rights as the rights would have expired over the years. However, innovations could still-be found in the non-basic product segments such as scaffolding products. The Group is one of the largest scaffolding manufacturers in Malaysia and commands a significant portion of 1he local scaffoiding market. The management believes the Group would continue to reap success in this area with the Crab System scaffolding, an innovative product which is poised to replace the ordinary steel scaffolding frames in the future. The Crab System scaffolding is a patented design developed by Entrepose of France. It IS an advanced scaffolding system which conforms to the European Safety Standards and is particularly suitable for heavy industrial usage such as shoring works, ship building, the oil and gas indus1ries and generai industrial applications~ HTSM is the sole licensed manufacturer and distributor of the Crab System scaffofding for Malaysia. (vii) Research and Development (‘lR&D”) The Group~s stra1egies are geared towards achieving optimum profit margins whilst constantly seeking to improve product and process standards through enhancing operational efficiency. The various strategies to optimise operating efficiency include constan1 training and upgrading of manpower skins/expertise, increasing levels of automation, towering production costsr process integration and conscious move towards higher margin/value-added products. The R&D department strives to assist the Group in meeting these objec1ives. The Group has been activery involved in R&D since the Group commenced operations. The Group has progressively upgraded and computerised its R&D equipment in Hne with advance/changes in technology to supplement and ensure that the performance of the R&D team js at optimum. The R&D department is headed by an experienced senior manager, Mr Lee Kee Bau, who works closely wi1h the Managing Director, Mr Kua Hock Lai, and is ass~sted by 3 technicians. The activities of the R&D team revolve around the fojlowing objectives:­• Increasing operational efficiency through continuous product and process enhancement and increasing level of automated process;
• Increasing productivity through developing and upgrading skills by way of training programmes; and
• Researching and developing new products/designs to meet the customers changing needs and market trends.

[ The rest of this page is intentionally left blank. ] 63 4. INFORMATION ON HTVB GROUP… confdn The R&D team has the necessary technical expertise to design/develop as well as to fabricate a complete production line necessary for new products design and specifications. Among the team’s notable successes are as follows;­Notable Successes of the R&D Team  2001  ~  Developed form~work equ[pmeflt to complement existing scaffolding products  1998  ~  Redesigned and subsequently manufactured various components of the Crab System that cater to local conditions wnich the Group’s customers had to previously import  Redesigned the temporary steel structure to enable the placement of seats for rnstallatjon at the Formula One Circuit at Sepang. These seating structure and frames were also supplied to various stadiums constructed for the Sydney 2000 Olympic games.  1997  ~  Redesigned some of the specifications of the Group’s customers to yield variant products that we~gh less and can be produced at a lower cost  1996  ~  Studied standard specification of steel products used in overseas markets and tailored-made its products to meet the standards imposed. This reduced the need for further tests for the products of ttle Group when penetrating a new market. 2 successful example are the Group1s entry into the Australian and Hong Kong marketsl j.e. the Group tailor-made its square harlow sections and pipes/tubes to meet the specifications of its customers in these markets.
In its efforts to keep abreast of the recent devejopments in the iron and steel industry in the local and jnternationaJ arenal the Group regularly sends its key personnel to international courses, seminars and exhibitions in order to expose the Group 10 new products, technologies and materials information system. The senior management also keeps a ctose relationship with its supplier network which normally has lnformation on the latest technology and machines available in the industry. Some of the other notable achievements/awards received by the Group are as follows:.. Notable Achievements/Awards  ~  Distributor prat~num Award presented by Malayawata Steel Berhad to HTH Excellent Performance for the year 2001/2002 in the sales of steel products  in  recognaion  of  ~  Distributor Platinum Awa.rd presented by Malayawata Steel Berhad to HTH Excellent Per10rmance for the year 2000/2001 in the sales of steef products  in recogniUon  of  ~  Apprec!ation from Perspec-Tasei~Kajima-Shimizu-HazamaConsortium to Mr Kok Kim Sang of HMSB for support and contribution for the successful design and construction of the Kuala Lumpur InternatJonal Airport projectl Package PTCI (Main Terminal BuOding. Contact Pier and Baggage Handling System)  ~  Certification from Entrepose that the Crab System manufactured under license by HTSM conforms to ISO 9001.
[ The rest of thjs page is intentionally left blank. ] 64

 

4. INFORMATION ON HTVB GROUP~~n. confd 4.7 The Iron and Steel Industry (i) Overview of the Iron and Steel Industry The iron and steel industry forms the foundation of an advanced, industrialised economy. Although the industry is highly capital-intensive, many developing countries have continued to insta!1 staet-making capacities for the sake of national interests, among others, to add value to natural resources, ensure ready supply for the development of the manufacturing and construction sectors, substitute for import, save on foreign exchange. and to generate further linkages with the rest of the economy. Most, if not all of the countries which have emerged as industrialised economies over the last four decades have regarded the development of their steel industry as a prjorjty~ The structure of the steel industry in Malaysia by product type and number of establishments is set out below:­CATEGORY AND TYPE OF STEEL PRODUCTS AND PRODUCERS =h.h·~~··,,·u~~~~,~~ ~~·~ Nu~inber of Rated Category Primary Products Roll ing/Finished Products Secondary Products ­Longs Secondary Products ­Ftats , Type of Products Establishment Capacity as at 2000 (~OOO MT) Direct Reduced Iron Hot-Briquetted Iron Billets Blooms Slabs RoUed Products Medium to Heavy Sections Hot-Rolled Coils Cold-Rolled Coils Plates Wires Mesh Hard Drawn Wire Na.lls Galvanised Wire Welding Electrodes Bolts & Nuts Shafting Bars Others Steel and Cement·lined Pipes Pfpe Fittings Tinplate Galvanised. Prepainted and Roll·Formed Sheets Steel Service Centres 1  1,200  1  720  6  41 400  1  750  • 2,500  51  5,000  1  700  1  2,000  2  680  1  .” 200  40  550  40  200  14  90  8  150  10  40  15  80  7  50  6  100  31  2,300  4  N/A  1  250  51  400  25  900
Notes:­Capacity expected from Megasieel Sdn Bhd to make the Hot-Rolled Coils Jikang DimBnsi Sdn Bhd To a large ex1ent, the steel industry in Malaysia is centred around the countryts construction and infrastruc1ural needs. Production is still dominated by long productsl especially bars and wire-rods although the importance of flats and steel sections has increased in recent years and rapid development and economlc prosperity of the country’s population~ Likewise, with continued emphasis on the manufacturing sector as the engine of growth, it is anticipated that Malaysia’s consumption pattern would witness a shift from longs to flats in the medium-to long-term, as tne per capita income of its population rises. (Source: Sh MISIF Report 2001) 67 4. INFORMATION ON HTVB GROUP. cont’dnu (ii) Growth of the Steel Industry in Malaysia Malaysia’s aggregate steel consumption trend between 1986 and 2000 is shown in the table below. In the 10 years preceding the 1997-98 financial crisis, steel consumption grew steadily from 1.5 million mt in 1986 to 3.3 million mt in 1990, and 8.1 million mt in 1996. Consumption peaked in 1997 at 8.3 million mt despite signs of an economic slowdown. In 1998, steel consumption declined sharply as the crisis rooted itself in the real sector of the economy. Consumptlon nose-dived an unprecedented 45% to 4.6 million mt in1998l before picking a strong 33% in 1999 to 6.1 million mt. In 2000, aggregate steel consumption recorded 6.9 million mt, with long products accounting for 44% of total consumption and flat products making up the remaining 56% • 9000 sooo !’P’ 7000IE –It,l 6000 fD I: .e 5000 u
E 4000 … ~ 3000 o 1000 o
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1S99 2000 I-“‘LOngS _ Flats ~.T~t~1 ~ Year L…-…. __. _ Aggregate Steel Consumption (Source: gh MISIF Report 2001) An lnteresting observation in the consumption pattern of steel as seen above is that between 1986-1994 and again from 1998·2000, the ratio of fiats to longs consumed were higher. The trend, howeverl reversed from 1995-1997 wi1h consumption of long products outstripping that of flats. A possible explanatton for this trend is that construction actlvity was at its peak in the mid 1990s. Over the five-year period between 1993-1997, the GDP for the construction sector grew at an average annual rate of 13~o. Growth was fuelled by a buoyant real estate market coupled with major infrastructural and building projects. Such projects resulted in the extensive use of rolled long productsJ such as bars, wire rods and sections. [ The rest of this page is intentionally left blank. ] 68

 

4~ INFORMATION ON THE HTVB GROUP…..cont’d (d) Seasonality Iron and steel are in demand for the broad and extensive range of end­products for diverse industries ranging from construction, metal fabricationl steel furniture frames, steel roll forming, engineering, automobile, metal stamping, electronics and home appliances~ Its dependency is therefore well spread out amongst the wide range of various end-products which are themselves utilised by a wide and growing base of end..users. Iron and steel components form the backbone and as such are important to the broad range of end…products for 1hese industries. Consequently, the Group would only be adversely affected by a downturn if all sectors of the economy are hit by a downturn. It therefore impinges to a significant extent on the growth of the national economy. In summarYI the demand and supply growth of the industry is largely fuelled by the demand for the end-products, the economic conditions and standard of living of the country, and its population growth. This enhances the stabinty of demand for the products as the decline in demand from one or more sectors/industries may be well offset by the increase in demand from another sector(s)/ industries~ Along the same lines, the demand for the products is geographically spread out by virtue of the nature of the end-products which are generally used world-wide in a wide range of industries4 It is envisaged that a decline in the economy of one or more user countries could likewise be offset by the economic growth of another country(ies) which would s1imulate the increase in demand for the end-products. (e) Government Legislation. Policies and Incentives for the Industry The Governmen1 recognises the importance of the iron and steel industry in sustaining the country’s economic growth. Accordingly., incentives to ensure the development of this industry have been provided under the MITI. The principal incentives for the industry under the Promotion of Investment Act (1986) and the Income Tax Act (1967) incrudes:­

 

I::~einvestment Allowance (“RA”) I A company granted the RA is given an allowance of 60% in respect of qualifying capital expenditure incurred on approved project for expansion of existfng business and qualifying projects for expansion, modernisation or diversification. RA will be aba1ed against 1he statutory income. Unabsorbed allowance is allowed to be carried forward to subsequent years until it is fully utilised. RA may allow a tax exemption of up to 1Qook of statutory income for each year of assessment effective from 1998 based on 60% allowance on qualifying capita! expenditure incurred. Lb::an Resource ;:elopment I The Government is currently undertaking serious efforts to produce skilled manpower to meet the current and future requirements of varlous industries, including the iron and steel industry. Technical and vocational education has been designed 10 cater for the specific needs for the potential industries as a measure to prepare sk[lled manpower needed for the development of these industries~ 72

4. INFORMATION ON THE HTVB GROUP…..cont’d (d) Construction has been a key sector to stimulate domestic economic activities and in enhancing growth. The sector has greater linkages, particularly with construction-related industries. It is also the Government’s objective to provide affordable low and medium-cost houses for the lower income group and towards this end, varIous measures/incentives have been put forward by the Government in line with its objective to provide affordable housing which include implementing the Home Ownership for the People (HOPE) project. The Government will also continue to undertake development projects, w[th priority 9ivan to infrastructure and construction-related projects, which have multiplier effects on the economy. Further, efforts are being intensified in human resource development programmes jn the construction sector with a view to upgrading skills and productivity of workers as well as providing traiing for graduates and schoolleavers. (Source: New Strategies Towards Stjmulating the Na.tion’s Economic Growtht 21 May 2003) Outlook of the Manufacturing Industry Value added growth in the manufacturing sector is expected to increase by 5% in 2003, on the assumption of a modest global economic outlook and moderate growth in the global electronics sector~ The rising trend in intra-regional trade is expected to continue to augment demand for exports of manufactured goods. Given the upside potential in the electronics and electrical products industry and the positive spin-off on the chemical products industry, growth of the export oriented industries as a whole is projected to increase by 6.2% (2002: 5%). At the same time, growth in the domestic­oriented industries is also expected to improve to 4.3% in 2003 (2002: 3.4%), supported by the food, beverages, fabricated metal, paper and petroleum products industries. Nevertheless, growth in the construction­related industries and transport equipment industry is expected to remain modest1 reflecting the slower periormance of the construction sector and some moderation in demand for passenger cars following the strong growth of the last two years. (Source: Bank Negara Malays;a Annual Report. 2002) The manufacturing sector continues to be the second largest contributor 10 the nation~s economic growth. with electronics providing the lead in the sector’s expansion. However, in the light of greater uncertainties in the external environment and increased competition from new global players, efforts must be taken to accelerate the transition towards the production of high value-added goods and explore new areas where Malaysia has the competltive edge. Towards this end, the following measures from the economic stimulus package announced on 21 May 2003 will be implemented, inter-aJia:­• Providing matching grants for companies in setected sectors to undertake R&D activities in Malaysia for qualifying purposes;
• Providing matching grants for commercialisation of research findings and innovations in selected growth sectors;
• Establishing the Fund for Development and romotion of Malaysjan Brand Names for Malaysian companies with an initial amount of RM1 00 m~nion; and
• Improving road and air transportation facilities between the West Coast and Eastern Corridor of Peninsular Malaysia.

(Source: New Strategies Towa.rds Stimulating the Nation~ Economic Growth, 21 May 2003) 75 4L INFORMATION ON THE HTVB GROUP~….cont’d 4.8 Major Customers The Group7s customers comprise a broad base of customers whose names are well established in both the manufacturing and construction industries. Presently the company has a wide spread of over 400 established direct customers comprising mainly hardware stockistsl manufacturers of various metal-related products and civil engineering companies. The top twenty (20) customers of the HTVB Group account for about 170/0 of turnover in the trading division as compared to 280/0 of turnover in the manufacturing division based on turnover for the six(6)-month period ended 31 January 2003. The average top twenty (20) customers’ relatlonship with the Group is between 6 and 7 years for both the trading and manufacturing divisions and these major customers of the trading division and the manufacturing division individually contribute ~e5s than 6% of the turnover of the HTVB Group and hence the HTVB Group is not overly dependent on certain major customers for its business~
4.9 Major Suppliers Save for Megasteel Sdn Bhd7 a Malaysian company with whom the Group has at least a five(5) year business relationship and from whom the Group sources hot-rolled steel coils, there are no major suppliers of the Group contributing to more than ten percent (10o/c) of the purchases of the trading and manufacturing djvisions based on the six(6)-month period ended 31 January 2003. Purchases from Megasteel Sdn Bhd accounted for approximately 52% of the Group’s purchases under the manufacturing dfvision4 The Group is not dependent on anyone particular supplier save as disclosed above. Currently, the Group sources a substantial portion of its supply of hot-rolled steel coils from Megasteel Sdn Bhd due to the restrictions imposed on their import. Notwithstand~ng the restriction, the Group is granted ‘~approved permits” (AP) 10 import hot-rolled steel coils if the end products are re-exported or these are with speciflcations that Megasteel Sdn Bhd does not produce4 The Group has established good business relationships with its suppHers and they in turn have proven to be reliable business partners. [ The rest of this page is intentionally left blank. ] 76

4. INFORMATION ON THE HTVB GROUP.. …conf’d Participation in International trade exposltions to gain wider exposure and to keep abreast in the iron and steel products industry and attending seminars he’d to promote bilateral trades amongst the Asiant South African and European regions. Barring any unforeseen circumstances~ these future plans of the HTVB Group to further spur the growth of development of the Group’s business is conditional upon the following factors:­0″ There is no regional and/or world recession: and 0″ There are no catastrophic events (natural or otherwise). [ The rest of this page is intentionally left blank. ] 78 ICornpanyNo.42 134Q-U I 4. INFORMATION ON THE HTVB GROUP” “.conl’d 4.11 Production F50w-Ch8rt (a) Mill Process Flow (for steel tubes)
,,…….. l<;.,”””; “”.;I·S!,,.,..’ Sill:…. 1\,h….• 1″.<.1 l”l<>rl1’\’
M .-..­’-‘. ‘-“, ( PIPE MILL _~• …., I’0. _
.:idL .L [][( I …..,… .’ r,1.. l.,.., “‘” iI-… “‘: ‘.I. rtf”… ,~

 

“”. -~C::h.:h.:h-:~ ……:..~
(.cco “‘” ‘\S. ‘.,”‘u~I”1/·.””‘nl V”~,,ileT Loo ..”I/.., Sh…, 79 4. INFORMATION ON THE HTVB GROUP …~.contJd Principal process of the Slitting Line Uncoiler Leveller Sljtter Tension pad and re-coiler The mother coil is unloaded onto the uncoiler and fed into the leveler. As the mother coil is uncoiled, the leveler levels or flattens the strip and it driven through th e sl1tter. The slitter cuts the mother coil as it is being driven through it The slitted coil (hoop coil) passes through the tension pad and then re.. coiled by the re-coiler. The hoop coil will then be removed by crane and stored at the coil yard. Principal process of the Pipe Mill Uncoiler Leveller and Forming roll High frequency welder Sizing roll Electronic running cutter Storage The hoop coil is unloaded onto the uncoiler and fed into the hoop cage or accumulator. The strip of the hoop coil from the hoop cage 1s driven through the leveler and flattened before being formed ,nto pipes or tubes through the forming rolls4 The formed pipes or tubes are welded by the high·frequency welder to seal the seams. The welded round pipes are then shaped by the sizing roiL The electronIc running cutter cuts the pipes according to a pre…specifled length. The completed pipes or tubes are packed and placed in a storage area awaitlng for shipment to customers. Principal process of the Shearing Line Uncoiler  The mother coil is unloaded onto the uncoiler and fed into the leveler.  Leveller  As the mother coil is uncoi~ed, the leveler levels or flattens the strip and it driven through the slltter.  Shearer  The shearer cuts the mother coil into the requlred length as it is being driven through ~t.  Storage  The resulting plates/sheets is arranged according to standard packing before being moved to the storage area pending shipment.ldelivery
80
4. INFORMATION ON THE HTVB GROUP….4confd (b) Heaw Duty Scaffolding (Crab System) Components from France under franchise
Incoming inspection
Raw material (comprising mild steel and pre-zinc mother coils sourced locally and imported) Incoming raw materials inspected against mill certiflcate from vendors Processed by the Slitting Line. Hoop colis result from this process Width and surface of hoop coil is visually inspected Processed by the Pipe Mill. Pipes or tubes result from this process Pipe or tube is visually inspected for attributes such as dimension. flattening, flaring etc. Cutting/Stamping process involves cutting and shaping the pipes or tubes from the earlier processes into the correct specifications Visual inspection of components produced from earlier process Assembly welding (robot or manual) of various components Visual inspection of completed products for welding strength, fitting and dimension Galvanising of products by sub-contractors Final 1nspection of completed products for ftnJshing quaHty and quantity Packing into standard packing quantity Storage (ready for shipping) 81
4. INFORMATION ON THE HTVB GROUP… ..confd (c) Light Duty Scaffolding Component
IncomIng inspection Galvanising

Raw material (comprising mild steel and pre-zinc mother coils sourced locally and imported) Incoming raw materials inspected against mill certificate from vendors Processed by the Stitting Line. Hoop coils result from this process Width and surlace of hoop coil is Visually inspected Processed by the Pipe MilL Pipes or tubes resuit from this process Pipe or tube is visually inspected for attributes such as dimension! flattening, flaring etc. Cutting/Stamping process involves cutting and shaping the pipes or tubes from the earlier processes into the correct specif1cations Visual inspection of components produced from earlier process Assembly welding (robot or manual) of various components Visual inspection of completed products for welding strength~ fitting and dfmension Galvanizing and coating of products with paint to protect surface through djpping and spraying Finat Inspection of completed products for finishing quality and quantity Packing into standard packing quantity Storage (ready for shipping) 82 4. INFORMATION ON HTVB GROUP….. conf’d 4.5 Business Overview (i) Principal Products The HTV8 Group is principaUy involved in the manufacturing and distribution of various iron and steel products. The manufacturing division of the HTVB Group can be broadly classified into two(2) categories, i.e. manufacturing and distribution of scaffoJding and related equipments by HTSM, HISS and HMSB and manufacturing and distribution of steel pipes and related products by APM, HISS and HMSB. Manufacturing Division I

Sheets Galvanlsed iron sh eets Mild steeIplates I sheets trom coils Mild steeJ chequered p~a tas I sheets from coils Cold rolled sheets Channels Mild steal lipped channels Hat dipped galvanised lippad channels Pre-gatvanised Upped channels sections Square hollow sections Rectangular hotiow sections PiPes B~ck welded steel pipes FurnRure tubes Conduit pIpes Sca”o~ding pipes Other services CoHs slitting se NlOO Coi ~s sheating seNice Pipes forming service Plates cuttlng sarvice Downsizing coils Scaffolding Metal framework Formwork accessories Washers I separator I u· clip II·p~n Steel fabrication I weldingworks 58
4. INFORMATION ON THE HTVe GROUP…uconf’d As iUustrated, the manufacturing division manufactures a wide and growing range of iron and steel products. These products are standardised jn size and specifications. Howevert the manufacturing division is arso able to manufacture according to the GroupJs customers’ specjficationst which vary in terms of design typeI thickness, strength end-use and colour. tt Under a License and Technical Assistance Agreement dated 3 Juiy 1996 (&4LTA”) between Entrepose and HTSM, HTSM obtained from Entrepose a licence to the relevant industrial property rights and the confidential technical information held by Entrepose in order to manufacture, rent and sell the said scaffolding system under the trademark “CRAB”. HTSM is the sole licensed manufacturer and distributor of the Crab System scaffoJding for Malaysia until 31 December 2004. The Crab System scaffolding is a patented design developed by Entrepose in France. It is an advanced scaffolding system which conforms to the European Safety Standards. The salient terms of the LTA and other related agreements are set out in Section 11.6(xxx) of this Prospectus. In its basic form, the Crab System scaffolding comprises scaffolding frames with steel tubes ranging from 2 inches to 2% inches in diameter compared to 2 inches for the normal scaffolding variant. Unlike the normal scaffolding frames which are held together with screws and nuts, the frames of the Crab System are locked into position by way of locking pins which can be engaged or disengaged conveniently and easily without the use of screws and nuts. The technology of the inter..locking pins employed in the Crab System render it a versatile scaffolding system by allowing the frames not only to stack upwards but also arranged into dome-shaped structures, H-shaped structures etc. The larger diameter of the steel tubes of the Crab System enable these frames to withstand a downward force of up 10 6 metric tonnes (compared to only about 2..5 metric tonnes for normal scaffolding frames) and is particularly suitable for heavy industrial usage such as shoring workst ship building, the oil and gas industries and general jndustrial applications. The manufacturing activities of the Group are complemented by the GroupJs trading division, Le. HTH and THH. These subsidiary companies principally trade in a whole range of products not produced by the manufacturing division so as to be able to provide to an even wider range of products to meet the needs of its customers. The range of products is constantly expanding in line with more sophisticated demand from end”,users in the various industries who are better exposed to new manufacturing technology and production equipment, as weH as faster construction methods. The principal products under the Group’s trading division is set out below:­
Structural steel beams Galvanised ironsheets & Angle bars Sheet piles pi~ Channel bars Electro gaNanised sheetsCarbon steel plates High tensiIe bars Cold rolled sheets S~~ss steel shafting Black welded pipesAiuminjum sheets Hollow sections Stainless steel sheets Mild steel plates Mlidsteeirods Chequered p1ates Wire mesh API pipes Fablication &supplies of custom made steet material Mild steel flat bar 59

 

4. INFORMATION ON THE HTVB GROUP … ..confd Currently, the Group also sources a substantial portion of its raw materials namely steel coils from Megasteel Sdn Bhd. Backed by over 30 years of experience of the senior management in the iron and steel industry, the Group has established aU the vital link-ups and business contacts, especially with its cus10mers and suppliers. These Unk-ups enable the Group to manage its raw materials prices. The Group closely monitors steel prices on a daily basis. This system has given the HTVB Group a cost advantage over other iron and steel manufacturers. (v) Quality Assurance and Control Precision is a highly critical process in the manufacture of Iron and steel products. A slight departure from a given specification order from customers’ requirements will produce an unacceptab1e product because it either would not be able to compfement the other products that the customers have or is unacceptab}e for contractual reasons. Stringent quality standards must therefore be adhered to in the manufacturing operatIons. Following this~ quality assurance procedures are infused at each and every step of the production process. The quality control team, comprIsIng 4 key members) oversees the quality control of the productions. Meetings between the Quality Control Departmen1 and the heads of the Production Departmen1, Materials Control Department. and the Sales and Marketing Department are held on a weekly basis to evaluate the production reports, and to discuss ways to improve the quality of the Group’s products~ Prior to the commencement of the manufacturing process, the Group exercises much care when sourcing for raw materials which undergo detailed scrutiny from the management in terms of product quality~ costJ availability, and deliverability. The quality inspectors are assigned the task 10 ensure that the mother coils that form the bulk of the raw materials meet international quality standards (i.e. British Standard -BS. Japanese Industrial Standard ­JIS). The raw materials are also visually inspected by the Group’s quality control personnel upon arrival at the Group’s premises. Visuar inspection includes checking inter-alia that the raw materials come with a mill certificate, tha1 the seal is not broken, and tha1 there are no white spots which may indica1e the onset of corrosion. Throughout the manufacturing process, quality control personnel will continue 10 conduct various tests on the steel mainly for its tensile s1rength and yield. The f~nished produc1s are also randomly tested for its chemical composition and steel con1ent. This system of constant testing reduces rejection rates or wastages, and saves re-manufacture costs in the long run. These rigorous tests ensure that the Group produces quality products, meet the customers’ specific requirements and in accordance with international quality standards and specifications. [ The rest of this page is inten1ionally left blank. ] 62

 

4. INFORMATION ON HTVB GROUP~~n. confd 4.7 The Iron and Steel Industry (i) Overview of the Iron and Steel Industry The iron and steel industry forms the foundation of an advanced, industrialised economy. Although the industry is highly capital-intensive, many developing countries have continued to insta!1 staet-making capacities for the sake of national interests, among others, to add value to natural resources, ensure ready supply for the development of the manufacturing and construction sectors, substitute for import, save on foreign exchange. and to generate further linkages with the rest of the economy. Most, if not all of the countries which have emerged as industrialised economies over the last four decades have regarded the development of their steel industry as a prjorjty~ The structure of the steel industry in Malaysia by product type and number of establishments is set out below:­CATEGORY AND TYPE OF STEEL PRODUCTS AND PRODUCERS =h.h·~~··,,·u~~~~,~~ ~~·~ Nu~inber of Rated Category Primary Products Roll ing/Finished Products Secondary Products ­Longs Secondary Products ­Ftats , Type of Products Establishment Capacity as at 2000 (~OOO MT) Direct Reduced Iron Hot-Briquetted Iron Billets Blooms Slabs RoUed Products Medium to Heavy Sections Hot-Rolled Coils Cold-Rolled Coils Plates Wires Mesh Hard Drawn Wire Na.lls Galvanised Wire Welding Electrodes Bolts & Nuts Shafting Bars Others Steel and Cement·lined Pipes Pfpe Fittings Tinplate Galvanised. Prepainted and Roll·Formed Sheets Steel Service Centres 1  1,200  1  720  6  41 400  1  750  • 2,500  51  5,000  1  700  1  2,000  2  680  1  .” 200  40  550  40  200  14  90  8  150  10  40  15  80  7  50  6  100  31  2,300  4  N/A  1  250  51  400  25  900
Notes:­Capacity expected from Megasieel Sdn Bhd to make the Hot-Rolled Coils Jikang DimBnsi Sdn Bhd To a large ex1ent, the steel industry in Malaysia is centred around the countryts construction and infrastruc1ural needs. Production is still dominated by long productsl especially bars and wire-rods although the importance of flats and steel sections has increased in recent years and rapid development and economlc prosperity of the country’s population~ Likewise, with continued emphasis on the manufacturing sector as the engine of growth, it is anticipated that Malaysia’s consumption pattern would witness a shift from longs to flats in the medium-to long-term, as tne per capita income of its population rises. (Source: Sh MISIF Report 2001) 67 4. INFORMATION ON HTVB GROUP. cont’dnu (ii) Growth of the Steel Industry in Malaysia Malaysia’s aggregate steel consumption trend between 1986 and 2000 is shown in the table below. In the 10 years preceding the 1997-98 financial crisis, steel consumption grew steadily from 1.5 million mt in 1986 to 3.3 million mt in 1990, and 8.1 million mt in 1996. Consumption peaked in 1997 at 8.3 million mt despite signs of an economic slowdown. In 1998, steel consumption declined sharply as the crisis rooted itself in the real sector of the economy. Consumptlon nose-dived an unprecedented 45% to 4.6 million mt in1998l before picking a strong 33% in 1999 to 6.1 million mt. In 2000, aggregate steel consumption recorded 6.9 million mt, with long products accounting for 44% of total consumption and flat products making up the remaining 56% • 9000 sooo !’P’ 7000IE –It,l 6000 fD I: .e 5000 u
E 4000 … ~ 3000 o 1000 o
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1S99 2000 I-“‘LOngS _ Flats ~.T~t~1 ~ Year L…-…. __. _ Aggregate Steel Consumption (Source: gh MISIF Report 2001) An lnteresting observation in the consumption pattern of steel as seen above is that between 1986-1994 and again from 1998·2000, the ratio of fiats to longs consumed were higher. The trend, howeverl reversed from 1995-1997 wi1h consumption of long products outstripping that of flats. A possible explanatton for this trend is that construction actlvity was at its peak in the mid 1990s. Over the five-year period between 1993-1997, the GDP for the construction sector grew at an average annual rate of 13~o. Growth was fuelled by a buoyant real estate market coupled with major infrastructural and building projects. Such projects resulted in the extensive use of rolled long productsJ such as bars, wire rods and sections. [ The rest of this page is intentionally left blank. ] 68

 

4. INFORMATION ON THE HTVB GROUP…..cont’d The Malaysian Government has also imposed tariff and non-tariff ruJes to control the import of steel to protect Malaysia’s developing steel industry. For example, the Government requires importers of hot-and cold-rolled coils to apply for an Approved Permit from the MITI. The Government aiso imposes duties on the imported steeL (c) Adequate Supply of Raw Materials Malaysia’s demand for steel products grew strongly in the 1980s, in tandem with its industralisation efforts. While local production of long products has been somewhat sufficient to cater 10 the requirements of the construc1ion sector, the country’s flat product requirements were fully imported untfl 199B. Shortfall in bars and wire rods were also imported to supplement local production. A large proportion of these imports were flat produc1s (Hot-Rolled t~HRJ? and Cold-Rolled sheets and coils~ plates, coated sheets and seamless pipes and tUbes), which were no1 produced locally. These items are used for finishing processes in industries such as shipbuildingl automotIve, machinery and engineering, container making and food canning~ In 2000, Malaysia imported 464~OOO mt of rolled longs (1999:489.000 m1) and 2~O million m1 of rolled flats (1999: 2.8 million mt)4 Sections alone accounted for 50% of rolled long imports while HR sheets and strips made up 430/0 of rolled flat imports. The import of HR flats peaked at 1.5 million mt in 1999 attributable to industry players building up their stocks with cheap imports. However, such imports moderated to 0.8 million mt in 2000 and is envisaged to decline in the next few years as ~ocal production picks up. r–‘ 3500 ~~~~ I I 3000-+—-,.;.~~Ii “” 2500 .~ 1500 ~
E o 1000 o C!. …. soo 1992 1993 1994 1995 1996 1997 1996._…..1999 ZOOO ….. Billets ::J ___Wire Rods –+-Hot-rolled Sheets and Strips Year Steel Imports by Product Types (1986 -2000) (Source: gh MISIF Report 2001) ‘986 1987 1988 1989 1990 1991 –II-Scrap Substltute .. Bars ___._Sections 71
4. INFORMATION ON THE HTVB GROUP…..cont’d (f) Threal of Substitute Products Iron and steel products are distinguished from those of other base materials based on its intrinsic properties of strength and malleability (i.e. the ability of the product to bent and shaped into various forms and shapes) which lend them resistance to easy damage. Notwithstanding that the tubes and pipes manufacturing division of the Group faces potential competition from those of the stainless steel variant, the Directors are of the view that the higher prices of these products make them a costly alternative for extensive industrial use or application. (iv) Outlook and Future Prospects (a) Outlook of the Malaysian Economy In an environment of heightened uncertainty in the global economy, growth in the Malaysian economy would be mainly domestjc driven, supported by a modest growth In external demand. Real GDP growth has the potentIal to be sustained in the region of 4.5<Yo in 2003 (4.2°/0 in 2002). Howevery unlike 2002, when the public sector remained the principal driver of economic groYlth, pr1vate sector demand is expected to assume a more signtficant role in driving economic expansion in 2003. The improved domestic fundamentals would provide support for the sustained consumption and continued recovery in private investment. The public sectorl whilst consolida1ingj would remain supportive of growth. External demand, however, remains a concern for possible downside risks. Malaysia’s increased resilience provides the authorities with the policy flexibility to enhance domestic sources of growth. Hencel policies in 2003 would focus on promoting domestic·led private sector driven growthr with the Government providing a positive enabUng environment for private sector activities and initiatives. Key strategies in the 2003 Budget focused on promoting domestic investment in all sectors with growth potential, ;n particular to promote activities in new and niche growth areas in the servicesJ agriculture and manufacturing sectors; enhancing human resource development to support a knowledge-based economy; and strengthening Malaysiats competitive position. Towards this end, further tax and non-tax incentives were provided to encourage the development of small· and mediumscale enterprises (SMEs) and penetration of new export markets and to encourage manufacturers to undertake higher value·added activities such as design and research and development. Direct fiscal incentives focused on lowering cost for smaH businesses through cuts in corporate taxes as well as attractlng higher investment ln target areas in the agriculture sector (including non-traditional downstream activities), and in higher value-added services related activitIes. Going forward, the new growth sectors, the information, communication and technology sector and resource-based industries would be important drivers of gro’tVth that would add depth and diversity as well as strengthen the resilience of the economy. On the production side, growth is expected to be broad based and reflected in all sectors of the economy. An improved performance 1S projected for the manufacturing and agricu~ture sectors, while activity is expected to be sustained in the services and mining sectors. Construction activlty is projected to be slower in 2003 due mainly to moderate activ~ty in the civil engineering and residential property sub~sectors. (Source: Bank Nagara Malaysia Annual Repon2002) 73

4L INFORMATION ON THE HTVB GROUP~….cont’d 4.8 Major Customers The Group7s customers comprise a broad base of customers whose names are well established in both the manufacturing and construction industries. Presently the company has a wide spread of over 400 established direct customers comprising mainly hardware stockistsl manufacturers of various metal-related products and civil engineering companies. The top twenty (20) customers of the HTVB Group account for about 170/0 of turnover in the trading division as compared to 280/0 of turnover in the manufacturing division based on turnover for the six(6)-month period ended 31 January 2003. The average top twenty (20) customers’ relatlonship with the Group is between 6 and 7 years for both the trading and manufacturing divisions and these major customers of the trading division and the manufacturing division individually contribute ~e5s than 6% of the turnover of the HTVB Group and hence the HTVB Group is not overly dependent on certain major customers for its business~
4.9 Major Suppliers Save for Megasteel Sdn Bhd7 a Malaysian company with whom the Group has at least a five(5) year business relationship and from whom the Group sources hot-rolled steel coils, there are no major suppliers of the Group contributing to more than ten percent (10o/c) of the purchases of the trading and manufacturing djvisions based on the six(6)-month period ended 31 January 2003. Purchases from Megasteel Sdn Bhd accounted for approximately 52% of the Group’s purchases under the manufacturing dfvision4 The Group is not dependent on anyone particular supplier save as disclosed above. Currently, the Group sources a substantial portion of its supply of hot-rolled steel coils from Megasteel Sdn Bhd due to the restrictions imposed on their import. Notwithstand~ng the restriction, the Group is granted ‘~approved permits” (AP) 10 import hot-rolled steel coils if the end products are re-exported or these are with speciflcations that Megasteel Sdn Bhd does not produce4 The Group has established good business relationships with its suppHers and they in turn have proven to be reliable business partners. [ The rest of this page is intentionally left blank. ] 76
4. INFORMATION ON THE HTVB GROUP.. …conf’d Participation in International trade exposltions to gain wider exposure and to keep abreast in the iron and steel products industry and attending seminars he’d to promote bilateral trades amongst the Asiant South African and European regions. Barring any unforeseen circumstances~ these future plans of the HTVB Group to further spur the growth of development of the Group’s business is conditional upon the following factors:­0″ There is no regional and/or world recession: and 0″ There are no catastrophic events (natural or otherwise). [ The rest of this page is intentionally left blank. ] 78 ICornpanyNo.42 134Q-U I 4. INFORMATION ON THE HTVB GROUP” “.conl’d 4.11 Production F50w-Ch8rt (a) Mill Process Flow (for steel tubes)
,,…….. l<;.,”””; “”.;I·S!,,.,..’ Sill:…. 1\,h….• 1″.<.1 l”l<>rl1’\’
M .-..­’-‘. ‘-“, ( PIPE MILL _~• …., I’0. _
.:idL .L [][( I …..,… .’ r,1.. l.,.., “‘” iI-… “‘: ‘.I. rtf”… ,~ “”. -~C::h.:h.:h-:~ ……:..~(.cco “‘” ‘\S. ‘.,”‘u~I”1/·.””‘nl V”~,,ileT Loo ..”I/.., Sh…, 79

4. INFORMATION ON THE HTVB GROUP… ..confd (c) Light Duty Scaffolding Component
IncomIng inspection Galvanising

Raw material (comprising mild steel and pre-zinc mother coils sourced locally and imported) Incoming raw materials inspected against mill certificate from vendors Processed by the Stitting Line. Hoop coils result from this process Width and surlace of hoop coil is Visually inspected Processed by the Pipe MilL Pipes or tubes resuit from this process Pipe or tube is visually inspected for attributes such as dimension! flattening, flaring etc. Cutting/Stamping process involves cutting and shaping the pipes or tubes from the earlier processes into the correct specif1cations Visual inspection of components produced from earlier process Assembly welding (robot or manual) of various components Visual inspection of completed products for welding strength~ fitting and dfmension Galvanizing and coating of products with paint to protect surface through djpping and spraying Finat Inspection of completed products for finishing quality and quantity Packing into standard packing quantity Storage (ready for shipping) 82

 

 

 

Comments are closed