Business Overview

5. INFORMATION ON TIlE MSB GROUP 5. INFORMATION ON TIlE MSB GROUP 5.1 INFORMATION ON MSB 5.1.1 History and Background MSB was incorporated in Malaysia on 24 July 2003 under the Act as a public limited company. The principal activity of MSB is investment holding. MSB has one (I) wholly-owned subsidiary, MSCRC, which is: principally involved in the manufm:turing and trading olCRC, MSCRC was incorporated in Malaysia under the Act on 6 January t989. MSCRC oommenced production in June 1990. MSCRC is the fitSt CRe manufacturer in Malaysia and operates from its cold roUi.ng mill located (In an 18~cre site located at Lot 717, Jalan Sungai Rasau, Seksyen 16,40200 Shah Alam, Selangor Darul Ehsan. For the past five (5) financial years. MSCRC’s average prodl.lCtion capacity is approximately 200,000 metric tonnes per annum. The business of manufacturing eRC has a high barrier to entry, primarily due to the high Investment cost to set up a eRe pl.ant. The machineries used are also mainly imported. thereby increasing the ,,'(Ists of purchasing and instaUing such assets. Some ofthe installed facilities at the cold roBing mill include the following: • Continuous pickling line;
• Hitachi 6-High cold reversing Ill:iH;
• Electrolytic cleaning line;
• Batch annealing furnaces;
• Recoiling line with e1ectrmtatic oil coater and pin-hole detector;
• Roll grinder; and
• Shot blasting machine.

The total co..’U of MSCRC’s property, plant and machinery Is approximately RM23S million, As: at 31 January 2004, the NBV of the property, plant and machinery is approximately RM127 million. An tbe facilities were purchased new from their respe¢tive mill manufacturers. On 1 October 1996. MSCRC was awarded the MS ISO 9002 certification in recognition of it.~ efforts in maintaining a quality system in management. Subsequently, MSCRC was awarded the :MS 150 9001 :2000 Quality Management System in 2002. MSCRC was also granted pioneer status by MIT! under the Promotion of lnves-tment Act, 1986 for a period of five-(5) years commencing from I October 1990 to 30 September 1995. MSCRC’s pioneer status was extended for another five (5) years o;::ommencing from 1 October 1995 to 30 September 2000. The MSB Group’s corporate structure is as follows: MSB (Investment Holding) 100% I
MSCRC I.MtmllUctming and trading of cold rolJed J.teelsheet& in ;;oils)

5. INFORMATION ON THE MSB G”‘R”‘O”‘V””P’-_
5,2 SHARE CAPITAL As at 30 April 2004, being the last practicable date prior to the printing of this Prospectus, MSB has an authorised share capital of IDrI500,OOO,OOO compdsing 500,000,000 Shares and an issued and paid-up share capital of RMI34,062,OOO comprising 134,062,000 Shares. Upon completion of the Public Offer, the enlarged issued and paid~up share capital of ),1$B sball be RMI79,OOO,OOO comprising 119.000,000 Shares. The details of the changes in the issued and paid·up share capital of MSB since incorporation nnlil 30 April 2004, being the last practicable date prior to the printing of this Prospectus. are as folio\\’S; Date of Allotment 24-07.2003 29.03.2004  No. {)f Shares 2 !34,061 ,998  Consideration Cash / Subscribers’ Shares Acquisition of MSCRC  IssuOO and Paid-up SI1arE’ Capital (~t 2 134,062,QOO
5,3 SUBSIDIARY AND ASSOCIATED COMPANIES Details of the MSB’g subsidiary company is as follows:­MSCRC  06.01.1989 Makwsia  60,000,000  100.0  Maullfacturing and uading of cold wJled ;!ecl !tl:”(1S in coils
MSB does-not have any associated companies. 5,4 INFORMATION ON SUBSIDIARY COMPANY Information on l’dSCRC (a) History andBusine,fs MSCRC was incorporated in Malaysia under the Act on 6 Jannnry 1989 as a private limited company under the name of Cold Rolling Industry {Mal.aysia) Sdn Ehd, It assumed its Currellt name on 19 January 20().:t MSCRC is principally involved in the manufacturing and trading of eRe. (b) Share Capital The authorised and issued and paid-up capital of MSCRC IS as follows:­~~__  Ammmi _~~~_ ~ _ ~ ~_~~~~!J’M)  Authorised Issued and Paid-Un  100,000.000 6O,OOO,lXlO  l00,OOO,OCXl 60,000,000
S. INFORMATION ON THE MSB GROUP Details of the changes in the issued and p8irl-up sfmre capital of MSCRC sirtee it” date of incorporatioll 8ft’ as foUQws:­Date of Allotment  Tot”  06.<H.t989 12.09,1989  13,925,99~  I Sub~ribef$’ Shares Cash  -(11M;2 13,926,000  15.05.1990  6,074,0Ci0  Pur’Mse of Land~  20,000,000  08.01.1991  20,000,000  eMh  4i},OOO,OOO  30.t2.1991  20,000,000  C;”h  OOJlfXH100
(c) Subsidiary and Associated Companies MSCRC does not have allY subsidiary or associated L-‘Qmpanies. 5.5 RESTRUCTURING IlXERCISE hl cQnjunction “vltlt. and as an integral part of the Listing, MSB implemented a restructuring exercise which was approved by the SC on 29 December 2003 and MITI on 20 October 2003, which involves the folloWing frall<;;lctions: 5.5.1 Acquisition of MSCRC MSB entered into a conditional SPA dated 11 August 2003 with MIG for the acquisition of the entire 1111lued and paid-up ordinary share cllpitnJ of MSCRC comprising 60,000,000 Shares for a purcha…e consideration of RMl34.061.99& which was satisfied by an issue of 134,Q61.998 new MSB Shares issued at par and credited tIS fully paid-up” The purchase consideration for the acquisition of MSCRC was arrived at based on the adjusted NTA of MSCRC as at 31 July 2003 of RMI34,061,998 derived as follows: RM Audited l’iTA GfMSCRC as at 31 January 2003 236,061.693 ~ Interim dividend paid 10 MIG mt 1 Febnurry 2003 (12,000,000) Interim di’i1deOO paid 10 M[(} on 23 July 2003 (90,000,000) Goodwill (to be wrinm off in the accounts at the end of F’lE 20(4) 30S Adjusted NTA of MSCRC as at 31 July 2003 134,061,998
s.s.z Capita} Distribution Upon completion of the acquisition of MSCRC by MSB, and in conjunction with the Listing of MSB on the Main Board of Bursa Malaysia, MIG, the Promoter and a substantial shareholder of MSB. implemented a capital distribution exercise 10 distribute 40,243,434 MSB Shares. representing approximately 22.5% of the enlarged issued and paid-up share capital of MSB after the Listing to its existing shareholders on the basis of one (1) MSB Share for the every fOUf (4) existing MIG shares heW by MIG’s shareholders. The capital distribution is expected to be completed after the Listing.
5. INFOR’VlATIONONTHEMSB GRO”’U-=’P,—————-­

 

5.5.3 Public Offer The Public Offer of a total of 44.938.000 Shares at the Offer Price shall be subject to the terms and conditions of this Prospectus and. upon acceptance, will be allocated in the following manner :­{a) 4.833,000 new MSB Shares. representing approximately ;t7% of the enlarged issued and paid-up share capital of the Company wiU be made available. for application by bumiputera investors approved by the MITT; (b) 8,950,000 new MSB Shares, representing 5.0% of the enlarged issued and paid-up share capital of the Company will be made available for application by Malaysian citizens. companies, societies, co.operatlv<:s and institutiom, of which at least 30.0% wilJ be rei aside strictly for application by bumiputera individuals, companies, societies” C(H)perative.s and institutions;
(c) 11,052,000 new MSB Shares representing approx.imately 6.2% of the enlarged issued and paid up share capital of the Company will be made available for application by Ihe eligible Dirccrors and employee…. of the MSB Group, the business associates of the MSB Group, the eligible Directors and employees of the MIG Group as well as the business assodates ofthe MIG Group; and
(d) 20,103,000 new MSB Shares, representing approximately 11.2% of the enlarged issued and pam-up share capital of the C-Ompany will be reserved for private placement to identified investors..

Upon completil.-1n of the Public Offer, the issued and paid·u~ share capital of MSB \vill increase from RM134,062DOO comprising: 134,062,000 Shares to RlvH79,ooo,OOO comprising 179.000,000 Shares. The Offer Shares to be issued pursuant to the Public Ofter \\ill rank pari passu in all respects with tne existing MSB Shares including voting rights and the rights to aU w’lldends that may be declared in the future. For further details pertaining to tbe Public Offer, please refer to Section:; of this Prospectus.
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5. INFO~”IATION ON THE “SB GROU~P ._ 5.6
APPROVALS, LICENSES AND PEB~lITS The major licenses and permits that have been obtained by the MSB Group which are still applicable as at 30 April 2004, being the last practicable date prior to the printing of this Prospectus, are as foHows: Subsidlaryl Authorities MSCRC MITI  Date Issued! License{ Cert. No. 00.09.1990.’ A006949! A019687  Nature of approval F..quit)’ condition imposed SWus Approval pursuant to the Industrial CQ-Qrdinmion Act. 1975 ttl act as a licensed manufacturer of cnld·rolled steel sheets in coils on Lot 714, 717, 2065 8< 2066. Jalan Sungai Ra£3h. Mukim Buldl Raja, Kelang, Selangor Darul Ehsan. At least 70% of the Company’s share~ should be bought and held by Malaysians. including at least 30% reserved for bumiputera sharehnldings. The Company is reqltired to consult the MITl prior to dealing in the shares reserved for bumiputera:>. Mel
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ICompany No, 6228~;’D ] ————-~.~~… ~~. 5. INFORMATION ON THE MSB GROUP 5~ LANDED PROPERTIES The MSB Group currently owns the following landed prope11ies;
A_
MSCRC Regldered UWller  Location l.<><~. 26.332, 26333, IWH.tllld 174%, Mukimuf Kaphf. Dislrietnf Klang, State of Selangor btflflng po~lat addre~); LoI/17,},,,. “””” R1lS1lIl. sw,= 16, P,O Bo~ 716lL 4(1706 Slm’ Alam, Selangor [lallli Eh,~  J)es>:rlplionf ExlstiuguSll’ ­\:OfltlgU\J’W\V'”” ofitldustrialland (‘r~ltbc= witb 11 cold rolling sted mill factory comprising II grum:! house. II double store), offk;e building, a $Ub~tation. a main focrory buililing, a-gyardfrecrliJing liut, II roil yard/roll shop am) mot: blasl building.~r treatment plant and metalled driveway  Tenure of land  • 2 stoITy”fflee bUilding;7::roo sq. ft • Main facIO!)’ building: 201,886 sq. ft, • Packing yard! Rocoillllg Iinc; 21.600 sq. It • New COil yard! roll shop utl(I M~_ builditlg: 24,486 sq. ft • New coil ynd’ 21,600 sq. It • Guard boose: 420 ~q, it • Tcuaga Nasiou.nl Befbad subsl;ltion; 5,394 ~q, ft. • Waler treilllrwnt plant: 20~8 ~11, ft l..and areal’ Built. up at'<!a {~)  \0 year.; Ap~roate ….”_,j  l. L 2. 1.  Nil Cl:l!!1t”d 10 Tnt Bauk ofToky;;> Limited vide PrtSll, N<;t, 4167flX1 lil. 219 ful, 37 daled 23 August 1900 ~lluf rnk7el;t- ~of~mnc ofFitnm • 19 Jilly 1990 • 19 November 1994 (for the two ~tor~y office block .111d the l;xtcUsroO of the <.’xi!itillg factory) .. 23 October 1998 (fur the Cll-teusiQ1l of me existing fact<:Jry)  Revaluation Ddielt'”‘NBV:I\sllt JJ JaJlUllry 2004 0,…….,,”,, Value as ilplJfUVOO by SC (RM ‘600) (RM ‘OOln (RM ‘000) (RJI,.I’OOO) _. ‘62,200/-“-“~~’ 61.,200″‘–‘”‘ ””~’6i2il-~~-~~~i2iY’ 22 October 20111 0_ …””” ValW’Dale M’\’allll’lmm
37
S. L’IFORMATION ON THE MSB GROUP
MSCRC Regiwl’«! <.1WDer  Location !.A:>t nme 23043 and :1.3044 (GMI65QM’ 01’41(51), Muldmof “””.District of KUlig, State of Se!atlg<:lr  Descrlpt10n I lWl;ltlog Wie Two(2} adjoining vacant indusma! \;md  TeuUR of land “”””w  [..and lU’1!8I BuiJt. lip ar~ (acres} 4.6251 Nut applicable  Not applicable Appro_ …. ‘” build!tlg{s;  1. Nil 2. Nil 1. Restl’ictiunm …”‘” 2. EneumbnUK’ES  Nor upplicable I:s!!ua~ of Cel”lilktt.W”‘,,- Renluatkm Denclt”,l Audilw NBVas at 31j’llnUllry 2004 Milrket Value as approved hy SC (R,,’1 ‘0(0) {1m ‘OOO} (RM ‘(00) {RM?OOO) ..”,., 0, ‘ .. i’.2s6″” “” .. ‘”8:230″·”'” “,·_·s..2’5ir··….”·”·”.. “‘r’ 161uly2003 (}porn Markf’t VaJuctDate (If valuatkm 0,..
Notes.. fa) The r<“VUiuationdefv::itwillbeim:orporatedinMSB’sauditedaccounts[vr theFYii 31 JanU<:l1}’ 2005, The above villuations W-ere approved by the SC on 29 December 2003, For further del:ails on the landed properties of the Group, ple,lSe refer to the valu-ation certiflCate contained in ~tion 12 of Ihis Prospectus.
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38

7. BUSINESS OVERVIEW AND FUTURE PROSPECTS OF THE MSB GROUP 7.1 PRODUCTS, SERVICES AND OPERAnONS 7.1.1 Steel Products MSCRC produces high grade eRe in many specifications_ These CRe can be categorised in terms of quality, surface finishes. edges as well as oiling. The table below summarises the categories and the types of CRe produced by MSCRC:­

Quality &mrnce finishes j Edges Commercial quality Drawing quality Deep drawing quality Dull Finish (MaUc Fmish) Commercial Brighl Finish MillEdge CRC that are made of carefully annealed low caroon steel coik They have good surface finiah, workability and c,,-rellent flatness. CRe that are better than those (if commercial quality. They are produced from high grade materials by a carefully controlled procesa, Made from nrictly selected materials and manufaew:red with the most exacting qualilY controls. This qualit}’ has the higbest atllrinable quality for drawing use, TIlis doc” not h.we My luSler and is flClUaUy made rough inteutioollUy so that the lubricant w.ill stkk 10 it during press funning, thereby facilitating fabrication. This finish L~ also suitable for painl :ulliesion. With thc-sc characteristics, eRe with this finish are moat extensively used. The amootn teKtUfC of the surface rnokcs its best suired , fur metallic plating and coating. Edges are prOOuc-etl dunog the hot rolled process lIt the !
manufacturing of hoi rolled coils.  Slit Edge (Trimmed Edge)  Edges are produced by trimming or slitting at the final stage after the cold tolling process.  Oiling  Electrostatic oil C(JOlter  eRe are oiled ‘&y electrostatic oil coater al the rewi:ling line in order fQ proVide maximum protection against lUsting.  DOS coating (FDA approved)  Tn be used in m::ilking fiXl<i grade packing containers.
The CRC manufactured by MSCRC is mainly used in the manufacturing of steel pipes and tubes, steel furniture, home appliances, electrical appliances, steel drums, automobile parts, steel strappings and as raw maleriai for gaivanised and coated sheets,
7. BUSINESS OVERVIEW AND FUTURE PRosPECTS OF THE MSB GROUP 7.1.2 Production Facilities and f’.1Ipacity MSB’s wl10Uy owned subsidiary, MSCRC, is principally engaged in the production of eRe. The production plant is sited on an 18~acre site on Lot 717, Jalan Sungai Rasau, Seksyen 16,40200 Shah Alam. Selangor Daru! Elisan. The plant has a buill up area of approximately 417,569 square feet The instaned facilities at the cold rolling mili include the following: • Continuous pickling line;
• Hitachi 6-High cold reversing mill;
• Electrolytic deaning line;
• Batch annealing furnaces;
• Recoiling line with electroseatic oil coater and pia.oole detector;
• Roll grinder; and
• Soot blasting machine

All the facilities were purchased new from their respective mill manufacturers. The production plant comm¢nced commercial operations in June 1990 to manufacture CRC and had an installed produclion CApacity of 70.000 mt per annum, which wa.” increased to J40,000 O1t per annum in 1992 following the instaUation of new annealing furnaces. MSCRC’s production CApacity was increased further to 200.000 rot per anllUD1 in 1997 fullowing the installation of several annealing furnaces, MSCRC w.as granted pioneer status by MIT! under the Promotion of Jnvestment Act, 1986 for a period of five years commencing from 1 October 1990 to 30 September 1995. MSCRC’s pioneer status WaS extended for another five (5) years commencing from 1 October 1995 to 30 September 2000, On 1 October 1996, MSCRC was awarded the MS ISO 9002 certifiCation in recognition of its efforts in maintaining a qUil.llty system in management and in the production of CRe Subsequently, MSCRC was awarded the MS ISO 9001:2000 Quality M<inagernent System in 2002, The cold rolling mill is currently running on two shifts or rhree shifts depending on demand. The current total production capacity for CRe is approximately 200,000 tnt per annum and the production outpUl for the FYE 31 January 2004 was approximately 160,000 mt. MSCRC has established a systematic, controlled preventive and predictive programme for the maintenance of its infrastruCture (existing building, lItility. work environment, support services, machinery and equipment) to sustain equipment reliability, lengthen equipment service life and prevent unscheduled equipment breakdowns which could result in the loss of operating days and decreased production. The types of maintenance programmes adopted by MSCRC are tt.\ follows:­{a) Basic maintenance such as the cleaning and ,greasing of machinery which is done on a regular basis by the respective line operators; (b) Monthly maintenance schedules for utility, work environment, machinery and equipment which is executed by maintenance personnel; and (c} Annlilll mechanical and electrical maintenance which is conducted by tbe maintenaoce department according to the fixed maintenance programme.
7. BUSINESS OVERVIEW AND FUTURE PROSPECTS OF THE MSB GROUP In addition to the above, engineers from the relevant equipment suppliers are engaged by the Company once every five (5) years to check on the critical plant and machinery located at MSCRC.
7.1.3 Production Process The main processes in the manufacturing of CRC is illustrated below: 1 Raw Materials —–….1 Continnons Pickling Process HRC are procured and verified for quality I Electmlylic Cleaning Process The rolling oil and dust are cleaned from the cold reduced steel coils
Batch Annealing Pmcess The cleaned cold reduced steel coils are annealed to restore the steel’s ductile properties. A protective atmospheric gas is used to prevent oxidation on the coil surface The HRC are then pickled to produce a strip surface suitable for cold rolling L __I+­C~o~l=d~R=ed=u~c=”=’o=u=P=r=o=c=es=s,–_~The pickled HRC are then cold reduced to the required thickness
Skinpass Process I The annealed cold reduced steel coils will be skinpassed to give the coils the required surface finish. Skinpassing will also reduce the tendency of the steel to stretch, strain or flute during fabrication +­

The finished CRC are then The skinpassed steel coils are trimmed, packed with laminated paper applied with rust preventive oil and cut to protect them from rusting to the individual customer’s required and then delivered coil weights A brief description of the various processes involved in the processing of the CRC is as follows: Feed Material The main raw material used in the CRC manufacturing process is the HRC. HRC are both imported and sourced locally as feed material for producing CRC. For the FYE 31 January 2004, approximately 37.8% of MSCRC’s HRC requirement are sourced locally, with the balance imported from Japan. The specifications of these HRC are worked out with individual steel mills to ensure that the CRC are produced to the required specifications. All incoming HRC are verified by quality assurance personnel to ensure that they meet with the agreed specifications. 57
7. BUSINESS OVERVIEW AND FUTURE PROSPECTS OF THE MSB GROUP
Pickling HRe are pickled in MSCRC’s Continuous Pickling Line to proooce a strip surface suitable for cold rolling. Rust and the fine layer of iron oxide scales found on the HRC are removed, The fIRC are uncoiled and joined by using a welder into a continuous strip before going lhrough a series of pickling tanks where pickling is carried out. The coils are then rinsed with hot water. dried. oued and then recoiled back for cold rolling. CoW Reduction Pickled fIRe are i:old reduced to the required thIckness at the “HITACHI” Brand 6 ­High Cold Reversing Mill. The pickled lIRe are passed through the rolls a few times to have its thickness reduced gradually. The: computer controtled thickness gauge in the Cold Rolling Mill continuously monitors the coil thickness to enMlTe that the desired thickness of the eRe is achieved. Electrolytic: Cleaning The cold reduced steel eoils are then p2ssed through the Electrolytic Cleaning Line where the rolling oil and dust are cleaned in an alkaline solution. These electrolytically cleaned steel coils have a dean and bright surface. Baich AOIlcaUng The Cleaned Cold Reduced Steel Coils are then annealed at the Balch Annealing Furnaces to restore tlte steel’s ductile properties, which is hard and brittle after cold reduction. A protective atmospheric gas is used to prevent oxidation on the coil surface during annealing. Specific heating cycles and cooling cycles are set and are constantly ruonitored to ensure th~t the ductile properties of the steel coils are fuUy restored. Sklnpassil1ll The Annealed Steel Coils are then sent back to the Cold RoUlng Mill for !ikinpassing ·where they are f(liled again with a set of shot blasted rolls to give it the required surface finish. Skinpassing wdl also reduce the tendency (If the steel to stretcher strain or flute during fabrication. R«»mng The Skinpassed Steel Coils are then sent to the Recoiling Line where they are trimmed to the required width and the appropriate rust preventive oil is applied to the required coating thickness with an Electrostatic Oil Cooter. The coils are then cut to the individual customer’;;. required coil weights, Trained operators are also stationed on this line to inspect the coils and collect samples for further tests and analysis. Packing Pocking is tbc last process in the production of eRe. The fmisbed coils are packed with laminated paper to protect them from rusting and steel rings are added to protect them from damages during handling and storage. Steel envelopes are also used in the packing on the speclfic request of certaIn export customers.
7. BUSINESS OVERVIEW AND ru”TU=’RE=”I””R”’OS”I’==E==crs==-O=-F=-TH=”’E-::lIl””SB=G””R=-O=-U”I’=——­Delivery eRe are sent to customers by trucks. These trucks are properly covered to prevent the coils from the elements of the \;<-eathet and the coils are also secured on the trucks to prevent any physical damage during their journey.
7.1.4 Raw Materials The primary steel products required for the manufacture of nat steel products are HRe and eRe. HRC is the main raw material used for the production of eRe. constituting 85% of the total cost of production. The eRe will then be processed into flat steel, which in turn will be used in the manufacture of siool pipes and tube. metal stamping, steel furniture, home appliances. drums, automobile bodies, hardware and raw material for galvanised and coated steel sheets. Currently, the total demand for fIRe in :Malaj’sia is approximately 2.0 mmion mt per annum, Megasteel, a subsidiary company of Amsteel Berhad is the only producer of HRC in Malaysia. Megasteel’s ntill located at OIak: I.empil Industrial Area in Banting. Selangor, has a total production capacity of 2,0 million rot. However, Megasteel is currently producing HRe at only 50% of its capacity pet year, i.e. LO mHlion ml per annum, with the remaining 50% of the domestic requirement for HRC being imported. Most of the domestic demand for HRC and other flat products are imported from China. Indonesia, lllaiIand, Korea and Japan. To protect the local steel industry, particularly that of the flat steel industry, the Government has imposed some duties! tariffs on the import of these products. Effective 15 March 2002. the Government has deddcd to raise the import duties for a total of 199 flat steel products such as lIRe and eRe, electro g’J.lvanised (“EG”), hot dipped galvanised iron (“GI”), pre-p.1inted galvanisbed rolls. steel pipes, etc up to a maximum of 50%. At the same time, companies that need to import these products are now required to have special import licenses. The hike is significant as previously HRC were subje-eted a maximum duty of only 25% tariff and CRe were subjected to a maximum duty of only 10%, white the various types of steel pipes were subjected to duties of around 20% or less. For imports of flat steel products from the A-‘lEAN countries, the import duty regime under the Common Effective Preferential Tariff (“CEPT”) scheme, which is the trade mechanism for the AFIA, will be maintained, Under tbe AFTA agreement, the import tariffs on gteel products and f3Vl materials are to be reduced hom lhe current 25% 10 5% by 1 January 2003. Nevertheless, the Government has agreed to e.>;eltlpl some industries from the new import duties. These include companies in the automotive industry, electrical and electronic industry, oil and gas industry. shipping i.ndustry. iron and steel fumlture industry. companies located in rhe free trade LOne and export based companies. Exemption has also been given to industries that require flat steel products that are not produced locally. such as specific parts made of steel used by the manufacturing industries. {Source.’ Bumiputra-Commerce Economic Research SeJ’ViceJ on Specin{ Industry issue -June 20(2)
7. BUSINESS OVERVIEW AND FU11JRE PROSPECTS OF THE MSB GROUP 7.1.5 Principal Markets In 2002. approximately 57% Qr 709,000 mt of the domestic requirement for CRe was importe-d from ..-:ountrics such as Japan, South Korea and China. During the same period. MSCRC and Ornasteel colledively produced 551,000 rut, agaim,t the total domestic requirement of 1,244,000 mt. (Source: MIS/F Report 2(03) Compared to eRe imported from overseas, the price of the eRe produced by MSCRC is marginaJlyhigher. but. after having taken into account the cost of freight. insurance and warehousing fa.ci1ities. is in actual fact comparable to the gJobal eRC price. Based on MSCRC’s production output as at 31 January 2004 of approx.imately 160.000 mt and the total local consumption of CRe in 2002 of approx;imately 1,244.0Q0 Int, MSCRC has a tllAJket share of approximately 13% in the local eRe market. MSCRC’s principal market is in Malaysia. Local sales make up approximately 96% of its total sales for FYE 31 January 2004 while the remaining 4% of its output are exported to China and Singapore. In this regard, tbe Directors are confident of maintaining, and where possible increase, the current estimated market: share in the near future as the Group possesses the necessary production capacity as well as marketing network to maintain and where possible incre<lSe their stake in the domestic steel market.
7,1,6 Product Quality and Accreditation Received The Group emphasises quality con1rol in its entire manufactwing process. The MSB Group’s CRe are manufactured under strict control procedures at various point.. of the production process. Strict checks are performed to ensure that MSB Group’s customers get products that are of the highest available quality. In recognjtion of its efforts to promote quality throughout its production and management processes, MSCRC wtiS awarded the MS ISO 9002 Certification for the manufacturing of eRe on 1 October 19%. Subsequently, MSCRC was awarded the MS ISO 9001;2000 Quality Management System in 2002. At present, the Group has a team of five (5) quality control inspectors headed by a ~tanager. In generai, the Group’s quality control inihatives are fucu<rerl on the following broad categories:~ (a) Quality rontrol inspection on incoming material All incoming raw and sub~raw materials are verified by the quaHty control inspectors to ensure that they meet with their agreed specifications. The detective or non-eonforming HRe are appropriatety tagged and the decision to use them wiii be determined by the Material Review Board (“MRB”) Tbe liRC that are deemed defective and unusabie will be do\’mgradcd or scrapped after notifying the respective supplier. (b) Quality control inspection dw:lng production Coils, which pass the in-process inspection for that particular process lioo ‘hi]] be tagged “no remnrk” and the coil nm proceed to the next process. Othelwise, oon-conforming coils are tagged appropriately for further action to be determined by the MRB
7. BUSINESS OVERVIEW AND FUTI.,-RE PROSPECTS OF THE MSB GROUP (c) Quality control inspection for finished product The finished product will be inspected at the production line by the quality control inspectot and the line inspector. They will determine if the finished product is to be rejected or downgrllde-d if there are any defects on it. The finished product which has completed the final inspection sball be released for delivery. In the event tMt customers require a laboratory test to be conducted on i1 finished product, the qualuy control inspoctor collects samples from the finished product and performs the required laboratory tests. The tests also save as MSB Group’s engineering study purpose, The quality control laboratory test includes the following> (i) Erichsen Test
(ii) Tensile Strength an Elongation Percentage Test

(iii) Hardness Test (Rockwell and Vicker) (iv) Surface Roughness Test The management of the MSB Group is committed to continually improving the effecliveness of its <luaHt>’ management system. The Group’s quality policy and objectives are reviewed and revised annually with a view of improving the quality of their finished products and hence, to achieve better customer satisfaction.

7.2 COMPETITIVE ADVANTAGES The MSB Group believes that it has the following ~ompetitive advantages: (i) The Group’s products are delivered to its customers in a timely manner. MSCRC’s operations are supplemented by the on~site presence of a fleet of tru<:ks provided by its contract haulage t.’Ompany which are prepared to on-load and dispatch its goods immediately after the production and packing process has been completed” (lj) The Group’s prodocts are ensured to be of a consistently high quality due to the various product quality checks implemented at various stages of the production process, Furthermore, in recognition of the above. MSCRC has been awarded the MS ISO 9002 Certification for the manufacturing of CRe on I October 1996. Subsequently, MSrne was awarded the MS ISO 9001;20()() Quality Management System in 2002. (iii) The Group is able to manufacture CRC based on customer’s requirements. This is mainly due to the years of experience accumulated by the Group in manufacturing: CRC of various customers’ specifications” Further, the MSB (‘noup occasionally w-orb with external (hird parties to produce new forms and specifications of eRe in an effort to highlight new uses fox the traditioual l,,’Qre product. (iv) The Group has also highlighted the high capital requirements in ot’der to seHtp a similar plant in Mala)’Sia as a barrier to entry for potential entrants into the industry. Currently, the estimated costs 10 set up a similar plant in Mal.1)’sia has been estimated at up to RM500 millinn. 7. BUSINESS OVERVIEW AND FUTURE PROSPECTS OF THE MSB GROUP
7.3 MODES OF MARKETING The :MSB Group believes that it already has a strong core grQup of customers and suppliers which will ensure the steady growth of the MSB Group. The MSB GrQup does not enter into any long-term sales contracts with its customers as it is a common industry practice to conduct business based on short-term contracts. However, in an effort to improve its relationship willi its cuslDmers., the Group has highlighted the following strategies for its marketing plan: (i) to provide improved customer service in terms of timely delivery of consistently high quality products;
(ii) to tnaillw:in a close v.mking relationship with its Cll…romers by attending to customer complaints ill a timely manner; and

(iii) to continually strive to improve the qllillity of its products based on the results (If its stringent (jllillity checks as well aq from feedback from its customers.
7.4 LOCATION OF OPERATIONS The MSB Group’s headquarten (including the filWlCC and accounting function) and cold rolling mill operations are located on an 18 acre site located at {..Dt 717, Jalan Sungai Rasau. Seksy-en l6. 4tr-OO Shah Alam, Sclangor Daml Ehsa.n”
7.5 RESEARCH AND DEVEWI’MENT The MSB Group does-oot have a form”l research and development division for the manufacturing of ils eRe as the product is generic and the nature of its products has not changed O””ef the years, However, the MSB Group. in l.’Ollaooration with its customers, >:Ievelops, improves and refines its products in order to ensure wnunuou$ prodoct >:Ieveloprnent as wen as to identify new applications for CRe Further. the MSB Group regularly monitors developments in the global and local steel industry, including: the development of new innovations and other technology that is useful 10 the Group. THE REST OF TIllS PAGE HAS BEEN INTFNflONALLY LEFT BLANK 7. BUSINESS OVERVIEW AND FU1TRE PROSPECTS OF TIlE MSB GROUP
7.6 MAJOR CUSTOMERS The MSB Group’s custQmers comprise a broad base of established customers in the steel and manufacturing industries, The top ten (to) customers of the MSB Group account for approximately 62.3% of its. revenue. The top ten {to) customers of the MSB Group on percentage of revenue for the FYE 31 January 2004 are as. follows;­L”ustomtr Nann Country'” Percentage of Length of Origin total turnover Relatioli.’lhip (%) (Years)
I. MIG Malaysia 16.7 15 2. Stanta Metal Drum Sdu Bhd Malaysia 9.2 9
3. Sumipuleh Steel Centre &In Bhd Malaysia 6.4 13
4. SMPC lndru<!:ries {M) Sdn Bhd Mlllaysia 6.Q 13
5. Ap<‘x Industries Sdn Bhd Malaysia 51 B
6. poro Edible Oils Sdn EM MalllYsia 4.6 13
7. Rex Metal Packaging Herhad Malaysia U 13 g Northern Steel Centre $dn BM Malaysia 3.6 13 ,. Japmas Sled Sdn Bhd Malaysia 33 9

10. Cargill International Trading Pte Ltd Singapore 3.2 I Based on the latest audited accounts of the Company as at 31 January 2004. with the exception of MIO, none of the MSB Group’s customers individually contribute to more than 10% of its revenue. MIG. a substantial shareholder of MSB contributed to approximately 16.7% of the MSB Group’s total turnover for the FYE 31 January 2004, In order to mitigate tbj& dependency, the MSB Group is constantly SQurcing for new customers through new business contacts established by tbe directors and its Promoter. Since December 2003, the Company hus been able to stX:U!e one new major custQmer for its products.
7.7 MAJOR SUPPLIERS There are currently three (3) suppliers to the MSB Group. However, the MSB Group bas not commltted to any long-term contract “”1m Its suppliers. The MSB Group has established good business relationships “‘1m its suppliers and they in turn have proven to be reliable husiness partners. The three (3) suppliers of the MSB Group in alphabetical order for the FYE 31 January 2004 are as follows;­Country fJl OrJgln  Pet’ooltage of tMal purchases  Length fif Relationship  (%)  (Years)  1. 2. 3  Marubeni-Itocltu Steel Inc, Japan Megasteel Sdn Bnd NKK Trading Ittl” Japan  Japan Mala%ta J_  44.0 38.0 IS.O  • 3 9
7. BUSINESS OVERVIEW AND FUTURE PROSPECTS OF THE MSB GROUP 7.8 FMPLOYEES As at 30 April 2004, being tbe last practj~bIe date prior to the printing of this l’ft-‘Sp¢Ctus, the M.>:tB Group hns II total of 102 fulHime employees in the following categories: <••••_•••••_•••••-Malaysian citizens •••••••••• > Category of  A,,–eragc  employee  Bumiputera  Chinese  Indian  Otb£rs  Foreign~  Total  …. 01″”‘”  in service  Managerial and  2  JO  12  2to21  pwfessioual  years ..  Technieal and  J3  5  4  22  14  supervisory  Clerical and related occupations  6  4  2  12  •  General empioyee  37  J9  50  More-than  9 years  58  19  25  102
Note: Managerial amiprofessumatstaffrompr[;e pri1fU1riJyQfthefollmving <:ail/gories:

Al'<!rage IW. c!ycars in sen>ice Managing Dirty/for 2 years President I CEO 1year Vice Presideut I Executive Virect()r!i 12 )’tllrs Sfflwr MWUigus 21 years Managers 18 years Engineers Gild IDect<fives 13 years The MSB Group recognises the importance of its employees and continuously takes sl.ej’)$ to update them on the latest developments. in the industry. These employees are also sent for training courses from time to time in order for them to update their technical knowledge, The employees of the MSB Group are not members of any trade union. and the management of the MSB Gronp enjoys cordial relatiol\$ with these employees, There has not been any material dispute to date bet\\’een management and these employees. In addition to the on the job training programs for all new employees, the following training and development programs have been lmplemented to enhance the kmwledge and skills of the MSB Group’s employees: • Autoooroous Maintenances • Managing Cost Reduction in manufacturing
• Total Preventive M.aintenance
• Root Came Analysis
• Modem Maintenance System & Equipment Trouble Shooting
• Maintenance Management Practices
• Planne-d Maintenance Optimisation
• Microsoft Word 2000 (Basic & Intermediate)
• Microsoft Excel 2000 (Basic & Intermediate)

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7. BUSINESS OVERVIEW AND FUTURE PROSPECTS OF THE MBB GROUP • Interim Reporting
• ISO 9001; 2000 internal auditing

7.9 INTERRUPTIONS TO BUSINESS DURING THE PAST 12 Mom’HS There has not been any material interruption to the businesses ofthe MSB Group in the twelve (12) IOOnths preceding the date of tltis Prospe.;:tus, 7.10 ENVIRO:NMENTALCONCERNS ‘The main waste products mat arise from lhe fllilnufacture of CRe are spent hydrochloric acid and metal hydroxide sludge. The spent hydrochloric acid is recyeled for use in water treatment facilities and the metal hydroxide sludge is reproce.~ed for the maklng of cement. The MSB GrQUP does nol recycle the waste products thClnselves. Instead, it has engaged the services of waste disposal experts to dispose its waste products. The MSB Group has not encountered any problems in disposing its waste products and currently complies with the Malaysian Environmental Quality Act 1974. 7.11 RISK MANAGEMENT PLANS With the engagement of professional personnel into the Group, MSB has established an enterprise risk management framework for the Group, particnlarly in relation to risks associated with fire, power and other emergency risks which may adversely affecl the operations of the :MSB Group. An assessment of the Group’ 5 risks areas would provide the basis for business improvement strategies. developing cost effective control strategies and intemal audit to prioritize operational reviews. Tbe management of MSB intends to put in place an action plans and reporting. mechan:i$JllS to ensure tbat the control effectiveness of Its rIsk management plans is improved over lime, Management intends to utilize the risk profiles to support its strategic planning processe.’>, and ~ill cominue to monitor changes to assess the degree of changes in the organization’s risk position over time. Forther. in relation to risks whIch are insurable, management has taken the necessary steps to ensure that these risks are adequately insured, including undertaking a periodic review of fhe net \\”Qrth of the Group’s net assets ‘thal are insured to ensure that the said assets are adequately insured at all times. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK

 

 

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