SOUTHERN STEEL BERHAD5283-X LAPORAN TAHUNAN 2002 Annual report CONTENTS

Corporate Information 02

Corporate Structure 03

Directors’ Profile 04

Corporate Governance Statement 09

Statement On Internal Control 11

Audit Committee Report 12

Disclosure Requirements Pursuant To The Listing Requirements Of The Kuala Lumpur Stock Exchange 14

Group Financial Highlights 15

Chairman’s Statement 16

Financial Statements 26

Properties Owned By Southern Steel And Its Subsidiaries 67

Analysis of Shareholdings 70

Notice Of Annual General Meeting 73

Notice Of Dividend Entitlement 75

Enclosed Form Of Proxy 79

Enclosed Kuala Lumpur Stock Exchange Complaint Form 81 Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 02 Annual report

CORPORATE INFORMATION

Directors Registered Office Y Bhg Dato' Abdullah Mohd Yusof Level 3, 2723 Lorong Perusahaan 12 Chairman Prai Industrial Estate Dr Tan Tat Wai 13600 Prai, Penang Group Managing Director Telephone : 04 390 6540 YA Bhg Tun Dato' Seri Dr Lim Chong Eu Facsimile : 04 390 8060 Y Bhg Dato' Hj Shaharuddin Bin Hj Haron Principal Place Of Business Kwek Leng San 2435, Lorong Perusahaan 12, Prai Industrial Estate, Tang Hong Cheong 13600 Prai, Penang Soon Seong Keat Telephone : 04 390 6540 (resigned on 27 June 2002) Facsimile : 04 390 8060 Yap Peng Leong (appointed on 27 June 2002) Auditors Ang Kong Hua PricewaterhouseCoopers Chong Wai Siak Chartered Accountants 4th Floor, Wisma Penang Garden Chang Meng 42 Jalan Sultan Ahmad Shah (Alternate to Chong Wai Siak) 10050 Penang

Executive Committee of Directors Registrar Dr Tan Tat Wai Chairman AGRITEUM Share Registration Services Sdn Bhd 2nd Floor, Wisma Penang Garden Kwek Leng San 42 Jalan Sultan Ahmad Shah Chong Wai Siak 10050 Penang Telephone : 04 228 2321 Chang Meng Facsimile : 04 227 2391 (Alternate to Chong Wai Siak)

Secretary Lim Gim Siok Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 03

CORPORATE STRUCTURE

83.7% Southern Pipe Industry (Malaysia) Sdn Bhd

100% Brisk Steel Products Sdn Bhd 100% Southern Mesh Sdn Bhd

100% Southern PC Steel Holdings Sdn Bhd 100% Southern100% PC Southern Steel Sdn Mesh Bhd Sdn Bhd

100% Southern Wire Industries (Malaysia) Sdn Bhd 100% Cempaka100% Raya Southern Sdn Bhd Mesh Sdn Bhd

100% Southern Steel Management Sdn Bhd 70% Trend Staples100% Southern Industry MeshSdn Bhd Sdn Bhd

100% Asia Seamless Pipes Sdn Bhd 100% Southern Mesh Sdn Bhd

100% Southern Carrier Sdn Bhd

100% Southern Steel Holdings Sdn Bhd 100% Southern Steel Industries Sdn Bhd

100% Southern Steel Trading Sdn Bhd 100% Southern100% Steel Southern Bar Sdn Mesh Bhd Sdn Bhd

100% Southern Galvanised Wire Sdn Bhd 100% Southern Mesh Sdn Bhd

Southern 100% Southern Coated Wire Sdn Bhd Steel Berhad 100% Gading Tunas Sdn Bhd

100% Southern Steel Properties Sdn Bhd

100% Danstil Sdn Bhd

100% Southern Precision Casting Sdn Bhd

100% Dowtech Sdn Bhd

100% Gading Julang Sdn Bhd

40.7% Southern NatSteel (Xiamen) Limited

40% NatSteel Trade International Pte Ltd

22.6% NatSteelVina Company Limited

50% Southern Oriental Sdn Bhd 50% Wujin Qianyang Steel Limited

27.5% Steel Industries (Sabah) Sdn Bhd 100% Southern Mesh Sdn Bhd Subsidiary Companies Associated Companies Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 04 Annual report

DIRECTORS’ PROFILES Y Bhg Dato' Abdullah Mohd Yusof Chairman, Independent Non-Executive Director Y Bhg Dato' Abdullah Mohd Yusof, aged 64, a Malaysian, is an Advocate and Solicitor, having his own legal practice since 1970. He graduated from the University of Singapore with a Bachelor of Laws (Honours) degree. He was appointed to the Board on 15 January 1986. He does not sit on any committees of the Company. He is also a Director of Jaya Jusco Stores Bhd, Sistem Televisyen Malaysia Berhad, Malaysia Mining Corporation Berhad, MMC Engineering Group Berhad, Tronoh Mines Malaysia Berhad, United Malayan Land Bhd and Pernas International Holdings Berhad, all public listed companies. Y Bhg Dato' Abdullah attended all Board meetings held during the financial year ended 31 December 2002. He does not hold any shares in the Company and its subsidiary companies, has no family relationship with any other Directors or major shareholder of the Company, has no conflict of interest with the Company and has no convictions for offences within the past ten years.

Dr Tan Tat Wai Group Managing Director / Non-Independent Dr Tan Tat Wai, aged 56, a Malaysian, holds a Bachelor of Science degree in Electrical Engineering and Economics from the Massachusetts Institute of Technology and a PhD in Economics from Harvard University. He started his career with Bank Negara Malaysia in 1978 undertaking research in economic policies and subsequently as consultant to Bank Negara, World Bank and the United Nations University for several years. He served as the Secretary and a member on the Council of Malaysian Invisible Trade set up to formulate policies to reduce Malaysia's deficit in service trade. He was a member of the Government appointed Malaysian Business Council and currently, a member of the Penang Industrial Council, the Industrial Co-ordination Council (ICC) and the National Committee on Business Competitiveness (NCBC) set up by the Ministry of International Trade and Industry. He represents Malaysia as a member of the APEC Business Advisory Council (ABAC). He is also the Vice-President of Harvard Club of Malaysia. Dr Tan was appointed to the Board of the Company on 18 May 1984 and assumed the position of Managing Director in September 1990. He is the Chairman of the Executive Committee of Directors of the Company. His other directorships in public companies are as follows: • Director of Shangri-La Hotels (Malaysia) Berhad, a public listed company. • Director of NatSteel Ltd, a public listed company in Singapore. • Director of Titan Petrochemicals & Polymers Berhad, a public company. Dr Tan attended all Board meetings held during the financial year ended 31 December 2002. He has a direct shareholding of 10,000 ordinary shares and indirect shareholding of 21,870,876 ordinary shares in the Company. Dr Tan is the son of Y Bhg Dato' Seri Tan Hoay Eam, who resigned as a Director of the Company on 18 March 2002 and a deemed major shareholder of the Company. He has no conflict of interest with the Company and has no convictions for offences within the past ten years. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 05

DIRECTORS’ PROFILES (CONTINUED) YA Bhg Tun Dato' Seri Dr Lim Chong Eu Non-Executive Director / Independent YA Bhg Tun Dato' Seri Dr Lim Chong Eu, aged 83, a Malaysian, is renowned as a leading statesman and holds the distinction of being the former Chief Minister of Penang. He has had a long and illustrious record as a political leader and representative of the people in many fields of national interests. He graduated with a Bachelor of Medicine and Bachelor of Surgery (M.B. Ch B.) from Edinburgh University of Scotland in 1944. YA Bhg Tun Dato' Seri Dr Lim was appointed to the Board of the Company on 6 December 1993. He is also the Chairman of the Audit Committee of the Company. His other directorships in public companies are as follows: • Chairman of Suiwah Corporation Bhd, a public listed company. • Chairman of Chin Well Holdings Berhad, a public listed company. • Director of Digi.Com Bhd, a public listed company. • Chairman of Berjaya Vacation Club Berhad, a public company. • Director of United Overseas Bank (Malaysia) Berhad, a public company. Of the five (5) Board meetings of the Company held during the financial year ended 31 December 2002, YA Bhg Tun Dato' Seri Dr Lim attended all except for two (2) for which he had extended his apologies. YA Bhg Tun Dato' Seri Dr Lim does not hold any shares in the Company and its subsidiary companies, has no family relationship with any other Directors or major shareholders of the Company, has no conflict of interest with the Company and has no convictions for offences within the past ten years.

Y Bhg Dato' Hj Shaharuddin Bin Hj Haron Non-Executive Director / Independent Y Bhg Dato' Hj Shaharuddin Bin Hj Haron, aged 64, a Malaysian, is an Economics graduate from University Malaya and holds a Masters degree in Economics from the University of Pittsburgh, USA. Y Bhg Dato' Hj Shaharuddin Bin Hj Haron was appointed to the Board of the Company on 3 December 1993. He is also a member of the Audit Committee of the Company. Prior to joining the private sector, he had a long and chequered career in the civil service, gaining vast experience in the various departments he headed some of which are as the First Secretary of the Foreign Investment Committee (FIC), the Director-General of Insurance, Ministry of Finance and Ministry of Public Enterprise, Secretary-General, Ministry of International Trade and Industry and Secretary-General, Ministry of Domestic Trade and Consumer Affairs. He is also a Director of Malayan Flour Mills Berhad, Gopeng Berhad, Ladang Perbadanan-FIMA Berhad, Latitute Tree Holdings Berhad, Edaran Otomobil Nasional Berhad and Ajinomoto (Malaysia) Berhad, all public listed companies. Of the five (5) Board meetings of the Company held during the financial year ended 31 December 2002, Y Bhg Dato' Hj Shaharuddin Bin Hj Haron attended all except for one (1) for which he has extended his apologies. Y Bhg Dato' Hj Shaharuddin Bin Hj Haron does not hold any shares in the Company and its subsidiary companies, has no family relationship with any other Directors or major shareholders of the Company, has no conflict of interest with the Company and has no convictions for offences within the past ten years. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 06 Annual report

DIRECTORS’ PROFILES (CONTINUED) Kwek Leng San Non-Executive Director / Non-Independent Mr Kwek Leng San, aged 47, a Singaporean, obtained a Bachelor of Science (Engineering) degree from University of London in 1978 and a Master of Science (Finance) degree from City University, London in 1979. He was appointed as a Director of Malaysian Pacific Industries Berhad ("MPI"), a public listed company, on 20 July 1990 and subsequently as the Group Managing Director of MPI from September 1990 to August 1993. Presently, he is the Executive Chairman of MPI and President and Chief Executive Officer of Hong Leong Industries Berhad and Hume Industries (Malaysia) Berhad. Mr Kwek was appointed to the Board of the Company on 27 October 1992. He is a member of the Executive Committee of Directors of the Company. His other directorships in public companies are as follows: • Group Managing Director of Camerlin Group Berhad • Managing Director of Hume Cemboard Berhad • Chairman of Industrial Concrete Products Berhad • Director of Hong Leong Company (Malaysia) Berhad and O.Y.L. Industries Bhd • Executive Chairman of Guolene Packaging Industries Berhad Mr Kwek attended all Board meetings held during the financial year ended 31 December 2002. He does not hold any shares in the Company and its subsidiary companies. He is the brother of Y Bhg Tan Sri Quek Leng Chan, a deemed major shareholder of the Company. Mr Kwek has no conflict of interest with the Company and has no convictions for offences within the past ten years.

Tang Hong Cheong Non-Executive Director / Non-Independent Mr Tang Hong Cheong, aged 47, a Malaysian, has 26 years working experience and obtained Fellowship of the Chartered Association of Certified Accountants, United Kingdom and membership of the Institute of Chartered Secretaries and Administrators, United Kingdom. He is currently the Finance Director of Hong Leong Management Co Sdn Bhd. Prior to this, he was the Group Managing Director of Nanyang Press Holdings Berhad. He has served in the Hong Leong Group of companies since 1976. Mr Tang was appointed to the Board of the Company on 16 August 1999. He does not sit on any committees of the Company. He attended all the Board meetings held during the financial year ended 31 December 2002. Mr Tang does not hold any shares in the Company and its subsidiary companies. He has no family relationship with any other Directors or major shareholders of the Company, has no conflict of interest with the Company and has no convictions for offences within the past ten years. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 07

DIRECTORS’ PROFILES (CONTINUED) Yap Peng Leong Non-Executive Director / Non-Independent Yap Peng Leong, aged 48, a Malaysian, obtained a Bachelor of Accountancy and Economics degree from the University of Newcastle Upon Tyne, United Kingdom and is an Associate of the Institute of Chartered Accountants of England and Wales. He had worked in three major international firms of Public Accountants / Chartered Accountants in England, Singapore and Kuala Lumpur. He joined the Hong Leong Group in 1987 and held various positions including Accountant / Manager in Hong Leong Finance Berhad, Group Financial Controller / General Manager in Hume Industries (Malaysia) Berhad and Chief Operating Officer of Hume Cemboard Berhad ("HCB") and was appointed to the Board of HCB as Managing Director on 1 January 2001. With effect from 28 February 2003, he resigned as the Managing Director of HCB and is appointed Managing Director of Hume Cemboard Industries Sdn Berhad and concurrently the Chief Operating Officer of Hume Industries (Malaysia) Berhad - Concrete Division. Mr Yap was appointed to the Board of the Company on 27 June 2002. He is also a member of the Audit Committee of the Company. He is also a director of Industrial Concrete Products Berhad, a public listed company. He attended all the two (2) Board meetings held since his appointment in June 2002. Mr Yap does not hold any shares in the Company and its subsidiary companies. He has no family relationship with any other Directors or major shareholders of the Company, has no conflict of interest with the Company and has no convictions for offences within the past ten years.

Ang Kong Hua Non-Executive Director / Non-Independent Mr Ang Kong Hua, aged 59, a Singaporean, is President of NatSteel Ltd, a listed Singapore-based manufacturing group, with core businesses in steel, building materials and electronics. As the chief executive officer of NatSteel since 1975, he has been responsible for the growth of Singapore's only steelmaker into one of Singapore's leading multi-industry groups. Mr Ang also serves on the Boards of various listed and private companies, as well as a number of government and advisory institutions. He graduated from the University of Hull, UK, with a Bachelor of Science (Economics) Upper II Honours degree in 1966. He was with the Economic Development Board (1966 to 1968) and DBS Bank Ltd (1968 to 1974) before joining NatSteel. He was appointed to the Board of the Company on 10 February 1982. He does not sit on any committees of the Company. Mr Ang attended all the Board meetings held during the financial year ended 31 December 2002. He does not hold any shares in the Company and its subsidiary companies, has no family relationship with any other Directors or major shareholders of the Company, has no conflict of interest with the Company and has no convictions for offences within the past ten years. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 08 Annual report

DIRECTORS’ PROFILES (CONTINUED) Chong Wai Siak Non-Executive Director / Non-Independent Mr Chong Wai Siak, aged 55, a Singaporean, graduated from the University of Manchester, United Kingdom, with a Bachelor's degree in Civil Engineering as well as a Master's degree in Structural Engineering. He held the position of Chief Executive Officer of Eastern Industries Pte Ltd from February 1989 till November 1998. He was transferred to NatSteel Ltd (parent company of Eastern Industries Pte Ltd) as the Deputy President since December 1998. Mr Chong was appointed to the Board of the Company on 10 May 2000. He is a member of the Executive Committee of Directors of the Company. Of the five (5) Board meetings of the Company held during the financial year ended 31 December 2002, Mr Chong attended all except for one (1) for which he has extended his apologies. Mr Chong does not hold any shares in the Company and its subsidiary companies, has no family relationship with any other Directors or major shareholders of the Company, has no conflict of interest with the Company and has no convictions for offences within the past ten years.

Chang Meng (Alternate to Chong Wai Siak) Non-Executive Director / Non-Independent Mr Chang Meng, aged 54, a Singaporean, holds a Master of Science (Chemistry) degree from the University of Singapore. He joined NatSteel Ltd in 1978 after his graduation. He has held various positions in NatSteel Ltd and its subsidiaries over the years. Presently, he is the Executive Vice-President of Operations Division and is overall in charge of production, engineering and maintenance of steel mills in local and overseas operations. Mr Chang was appointed to the Board of the Company as Alternate Director to Mr Chong Wai Siak on 10 May 2000. He does not hold any shares in the Company and its subsidiary companies, has no family relationship with any other Directors or major shareholders of the Company, has no conflict of interest with the Company and has no convictions for offences within the past ten years. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 09

CORPORATE GOVERNANCE STATEMENT The Board of Southern Steel Berhad ("SSB") is pleased to have the opportunity to report to shareholders on the manner in which it has applied the principles of good governance as set out in the Malaysian Code on Corporate Governance. In preparing this report the Board has considered the manner in which it has applied the Principles of Good Governance ('Principles') and the extent to which it has complied with the Code of Best Practice ('Code'). Any areas where the Company has not complied with the Code are indicated herein.

THE BOARD OF DIRECTORS The Board of Directors comprises nine (9) directors, eight (8) of whom are non-executive. Of the eight (8) non-executive directors, three (3) are considered independent. A brief profile of each director and their attendance records are provided in the Annual Report. There is clear division of responsibility between the Chairman and the Group Managing Director. All major investment and other strategic decisions are reserved for the Board, which also has responsibility for corporate governance matters, senior executive remuneration and succession planning for top management. As appropriate, the Board has delegated certain responsibilities to Board committees, such as the Executive Committee and the Audit Committee. The Board has identified Chairman of the Audit Committee as the senior independent non-executive director to whom concern may be conveyed.

SUPPLY OF INFORMATION Prior to each Board or Executive Committee meeting, Directors are sent an agenda and accompanying Board papers for each agenda item to be discussed at the meeting. At each regularly scheduled meeting, there is a full financial and business review and discussion, including performance to date against the annual budget and financial plan previously approved by the Board for that year and management proposals that require the approval of the Board. Directors may obtain independent professional advice in furtherance of their duties, at the Company's expense. All Directors have access to the advice and services of the Company Secretary.

APPOINTMENT TO THE BOARD The Company does not have a Nomination Committee as all new nominations received are assessed and approved by the entire Board in line with its policy of ensuring nominees are persons of sufficient calibre and experience. Under the Company's Articles of Association, the Board is subject to retirement and re-election at least once in every three (3) years. The process of assessing the directors is an on-going responsibility of the entire Board. The Company does not have a formal training programme for new directors. However, familiarisation programme with the operations of the Group will be arranged for any new appointee to the Board. All directors have attended and successfully completed the Mandatory Accreditation Programme conducted by the Research Institute of Investment Analysis Malaysia, an affiliate company of the Kuala Lumpur Stock Exchange. All Directors are also committed to attend the Continuous Education Programme prescribed by Kuala Lumpur Stock Exchange from time to time.

DIRECTORS' REMUNERATION The Company does not have a Remuneration Committee. The Group's remuneration scheme for executive directors is linked to performance, service seniority, experience and scope of responsibility and is periodically benchmarked to market / industry surveys conducted by human resource consultants. Performance is measured against profits and targets set in the Group's annual business plan and budget. For non-executive directors, the level of remuneration reflects the level of responsibilities undertaken by them. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 10 Annual report

CORPORATE GOVERNANCE STATEMENT (CONTINUED) The aggregate remuneration of directors distinguishing between executive and non-executive directors for the financial year ended 31 December 2002 is as follows: Salaries & Fees (RM) Other Emoluments (RM) Total (RM) Executive Directors 30,000 800,800 830,800 Non-Executive Directors 310,000 55,000 365,000

The number of directors distinguishing between executive and non-executive directors whose remuneration falls into the following bands is as follows: Range of remuneration (RM) Executive Non-Executive 50,000 and below 0 9 50,001 - 100,000 0 2 100,001 - 800,000 0 0 800,001 - 850,000 1 0

RELATIONS WITH SHAREHOLDERS The Board acknowledges the need for shareholders to be informed of all material business matters affecting the Group. In addition to various announcements made during the year, the timely release of financial results on a quarterly basis provides shareholders with an overview of the Group's performance and operations. The Annual General Meeting, usually held in June each year, is the principal forum for dialogue with private shareholders. There is also an open question and answer session in which shareholders may ask questions both about the resolutions being proposed at the meeting and also about the business in general. The Chairmen of all the Board's major committees are in attendance to answer questions about matters relating to those committees. Information about the Group and the Company such as history, quality achievements, product specifications and manufacturing process etc, are available on www.southsteel.com.

FINANCIAL REPORTING In presenting the annual financial statements and quarterly announcements to shareholders, the Directors aim to present a balanced and understandable assessment of the Group's position and prospects. This also applies to other price-sensitive public reports and reports to regulators.

INTERNAL CONTROL Please refer to the relevant section of the Annual Report on Internal Control Statement.

DIRECTORS' RESPONSIBILITY STATEMENT The Directors are required by the Companies Act, 1965 ("the Act") to prepare financial statements for each financial year which have been made out in accordance with applicable approved accounting standards. The financial statements should give a true and fair view of the state of affairs of the Group and the Company at the end of the financial year and the results and cash flows of the Group and the Company for the financial year. Following discussion with the Auditors, the Directors consider that the Group and the Company have used appropriate accounting policies that are consistently applied and supported by reasonable and prudent judgments and estimates and that all accounting standards which they consider applicable have been followed during the preparation of the financial statements. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 11

STATEMENT ON INTERNAL CONTROL Responsibility The Board acknowledges its responsibility for the Group's system of internal control and for reviewing its adequacy and integrity. However, such a system is designed to manage rather than eliminate risk of failure to achieve business objectives. Accordingly, such system can provide only reasonable and not absolute assurance against material misstatement or loss. The concept of reasonable assurance also recognizes that the cost of control procedures should not exceed the expected benefits.

Risk Management Framework The framework and the key elements of the Group's system of internal control are as follows: • A management structure exists with clearly defined delegation of responsibilities to Committees of the board and the management of Group's main operating companies, including authorization level for all aspects of the business. Each operating company has clear accountabilities for ensuring that appropriate risk management and control procedures are in place. Further to the Strategic Corporate Risk Management workshops conducted in September and October 2001 by an external consultant to create and reinforce risk awareness, a series of risk management workshops were conducted by the Group Internal Audit Department from October 2001 to April 2002 to assist the management in developing the enterprise wide key risk register of the main operating companies within the Group. The key risk register was subsequently reviewed / approved by the Audit Committee in November 2002. • The Board has appointed the Group Managing Director as Chief Risk Officer to administer the risk management framework. Business risk assessment and evaluation is an ongoing exercise undertaken by the Board and management. The Internal Audit Department will submit yearly to the Audit Committee its review report on risk management for each main operating company within the Group. • In associated companies, the Board nominates representatives to sit as directors and takes a proactive stance in assessing the performance of the entity with the goal of safeguarding the investment of the Group. Monthly financial and operating information are submitted for review by the Group's management. These associated companies are subject to review by internal auditors of the joint venture partner. The key elements of the Group's internal control system are described below: • A detailed budgeting process where operating units prepare budgets for the following year, which are approved by the Board. • Monthly monitoring of results against budget, with major variances being followed up and management action taken, where necessary. • Major decisions require the final approval of the Board and are made after appropriate in-depth analysis. • Regular and comprehensive information provided to management, covering the performance of key financial and operational indicators. • The Internal Audit Department independently reviews the control processes implemented by Management and reports its findings and recommendations independently to the Audit Committee. • In addition to the monthly operational meetings, senior management meetings are also held monthly to consider the Group's financial performance, business development, strategic and corporate issues. • The Audit Committee, with the assistance of the Internal Audit Department assesses the effectiveness of the Group's internal control system, which is reviewed regularly in the context of reports to the Committee. All internal control weaknesses identified during the periods have all been, or are being, addressed. None of the weaknesses have resulted in any material losses, contingencies or uncertainties that would require mention in the Group's annual report. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 12 Annual report

AUDIT COMMITTEE REPORT COMPOSITION AND MEMBERSHIP The Audit Committee was appointed by the Board from amongst its directors and is composed of a minimum of 3 members with a majority of independent directors. No alternate director shall be appointed as a member of the Audit Committee. The Chairman of the Committee shall be an independent non-executive director. At least one member of the Audit Committee must be a member of the Malaysian Institute of Accountants (MIA) or non- member of MIA with a minimum of 3 years' working experience and passed the examinations specified in Part I of the 1st Schedule of the Accountants Act 1967 or is a member of one of the associations of accountants specified in Part II of the 1st Schedule of the Accountants Act 1967. The following 3 directors have been appointed as members: 1 YA Bhg Tun Dato' Seri Dr Lim Chong Eu, Chairman 2 Y Bhg Dato' Hj Shaharuddin bin Hj Haron 3 Yap Peng Leong

MEETINGS AND MINUTES Meetings shall be held not less than four times a year. The external auditors may request a meeting if they consider that one is necessary. The Group Managing Director, the Corporate Financial Controller, the Group Financial Controller and the Head of Internal Audit shall attend meetings. A representative of the external auditors is to be in attendance at meetings where matters relating to the audit of the statutory financial statements and / or the external auditors are to be discussed. A quorum shall be 2 members present, a majority of whom must be independent directors. During the financial year ended 31 December 2002, a total of 5 meetings were held. Name Status of directorship Eligible to attend Attended YA Bhg Tun Dato' Seri Dr Lim Chong Eu Independent Non-executive 5 5 (Chairman) Director Y Bhg Dato' Hj Shaharuddin bin Hj Haron Independent Non-executive 5 5 Director Soon Seong Keat (resigned as committee Non-independent 3 1 member on 27 June 2002) Non-executive Director Yap Peng Leong (appointed as committee Non-independent 2 2 member on 27 June 2002) Non-executive Director

REPORTING PROCEDURES The Company Secretary shall be the secretary of the Committee. Minutes of each meeting shall be circulated to the members of the Committee and all members of the Board.

TERMS OF REFERENCE Responsibility Where an Audit Committee is of the view that a matter reported by it to the Board of Directors has not been satisfactorily resolved resulting in a breach of the Listing Requirement of Kuala Lumpur Stock Exchange, the Audit Committee shall promptly report such matter to the Kuala Lumpur Stock Exchange. Authority The Audit Committee is authorised by the Board to review any activity within its terms of reference and shall have full and unrestricted access to any information pertaining to the Group and the management, and all employees of the Group. The Audit Committee is also authorised to obtain independent professional or other advice as and when necessary. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 13

AUDIT COMMITTEE REPORT (CONTINUED) Duties The duties of the Committee shall be: 1. To discuss with the external auditors before the audit commences the nature and scope of the audit and ensure co-ordination where more than one audit firm is involved. 2. To review with the external auditors their evaluation of the internal control system. 3. To review the assistance given by the employees of the Group / Company to the external auditors. 4. To review the adequacy of the scope, functions and resources of the internal audit functions and that it has the necessary authority to carry out its work, and also to consider the major findings of internal audit investigations and management's response and ensure co-ordination between the internal and external auditors. 5. To review the quarterly and annual financial statements before submission to the Board, focusing particularly on: a. Any changes in accounting policies and practices; b. Major judgmental areas; c. Significant adjustments resulting from the audit; d. The going concern assumption; e. Compliance with accounting standards; f. Compliance with stock exchange and legal requirements; and g. Significant and unusual events. 6. To review any related party transaction and conflict of interest situation that may arise within the Group including any transaction, procedure or course of conduct that raises questions of management integrity. 7. To consider the appointment of the external auditor and any question of resignation or dismissal and the fixing of audit fees. 8. To review any appraisal or assessment of the performance, and approve any appointment or termination of the Head of Internal Audit. 9. To consider other topics, as defined.

SUMMARY OF ACTIVITIES In line with the terms of reference, the main activities carried out during the financial year by the Audit Committee in discharging its duties were summarised as follows: 1. review of the audit plans of the Group and the Company for the year ended 31 December 2002; 2. review of internal audit reports on internal controls and risk management presented by the Internal Auditors for the Group and the Company; 3. review of unaudited quarterly results before presenting to the Board for approval; 4. review of the disclosure on related party transactions entered into by the Group and the Company in the annual report of the Company; 5. review of the draft audited financial statements of the Group and the Company for the financial year ended 31 December 2002 with the external auditors before presenting to the Board for approval; and 6. consider the resignation and appointment of external auditors.

INTERNAL AUDIT FUNCTION The Group has an Internal Audit Department - which reports to the Audit Committee and assists the Board in monitoring and managing risks and internal controls. The principal responsibility of the Internal Audit Department is to undertake regular and systematic review of the operations, policies and procedures in order to provide reasonable assurance that internal control and risks are satisfactorily monitored and managed within the Group. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 14 Annual report

DISCLOSURE REQUIREMENTS Pursuant to the listing requirements of the Kuala Lumpur Stock Exchange UTILISATION OF PROCEEDS During the financial year, there were no proceeds raised by the Group and the Company from any corporate proposals.

SHARE BUYBACKS During the financial year, there were no share buybacks by the Group and the Company.

OPTIONS, WARRANTS OR CONVERTIBLE SECURITIES No options, warrants or convertible securities were exercised by the Group and the Company in the financial year.

AMERICAN DEPOSITORY RECEIPT (ADR) OR GLOBAL DEPOSITORY RECEIPT (GDR) PROGRAMME During the financial year, the Group and the Company did not sponsor any ADR or GDR programme.

IMPOSITION OF SANCTIONS / PENALTIES There were no sanctions and / or penalties imposed on the Group and the Company, Directors or Management by the relevant regulatory bodies.

NON-AUDIT FEES Non-audit fees paid to the external auditors for the financial year amounting to RM250k for professional services rendered in connection with the review of Profit and Cashflow Forecast / Projections for the financial years ending 31 December 2002 to 31 December 2007 for the purpose of the Irredeemable Convertible Unsecured Loan Stocks exercise.

PROFIT ESTIMATE, FORECAST OR PROJECTION The Group and the Company did not release any profit estimate, forecast or projection for the financial year. There is no significant variance between the results for the financial year and the unaudited results previously released by the Group.

PROFIT GUARANTEES During the year, there were no profit guarantees given by the Group and the Company.

MATERIAL CONTRACTS INVOLVING DIRECTORS' AND MAJOR SHAREHOLDERS' INTEREST Letters of Undertaking from the major shareholders relating to the Company's Proposed Renounceable Rights Issue of up to RM141,176,500 nominal amount of 5.5% 5-year irredeemable convertible unsecured loan stocks ("ICULS") as follows: 1 Southern Amalgamated Co Sdn Bhd dated 18 March 2002 to the Company to subscribe for their entitlement of RM10,935,438 nominal value of ICULS; 2 NatSteel Ltd dated 21 March 2002 to the Company to subscribe for their entitlement of RM38,164,500 nominal value of ICULS; and 3 Hume Industries (Malaysia) Berhad dated 26 March 2002 and 17 December 2002 to the Company to subscribe for their entitlement of RM57,530,662 nominal value of ICULS.

RELATED PARTIES TRANSACTIONS Significant related parties transactions of the Group during the financial year are disclosed in Note 26 to the financial statements in accordance with the general mandate obtained from shareholders at the Annual and Extraordinary General Meetings held on 26 June 2002 and 31 December 2002 respectively setting out the aggregate value of recurrent transactions conducted during the financial year.

REVALUATION OF LANDED PROPERTIES The Group revalues its landed properties at a 5 year interval with additional revaluation in the intervening years if the carrying value of the revalued landed properties differs materially from the market value. A valuation exercise has been carried out on properties of the Group in April 2002 for the purpose of ICULS exercise. Based on the results of this revaluation exercise, the Directors have approved that the surplus arising therefrom of RM11 million be credited to the revaluation reserve account. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 15

FINANCIAL HIGHLIGHTS In RM' million unless otherwise stated 1998 1999 2000 2001 2002 Revenue 845 881 1,254 1,374 1,460 Profit / (Loss) Before Taxation (144) (39) (13) (52) 27 Profit / (Loss) After Taxation (143) (39) (14) (55) 27 Profit / (Loss) Attributable to Shareholders (137) (38) (12) (52) 27 Tangible Assets Employed 1,733 1,765 1,880 1,712 1,697 Shareholders' Funds 463 435 426 373 411 Paid-up Share Capital 282 282 282 282 282 Net Tangible Assets per Share (sen) 135 127 125 107 122 Earnings / (Loss) Per Share (sen) (49) (13) (4) (18) 10 Dividend - Tax exempt (%) - - - - 3 Dividend - Tax exempt (sen per share) - - - - 3 Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 16 Annual report

CHAIRMAN'S STATEMENT The last five financial years from 1997 to 2001 had been difficult and tough for the Group. The Group lost a total of RM262 million in the five years, with RM144 million or 55% in 1998 itself. The bulk of this loss was foreign exchange related. Despite the heavy losses, all major group companies generated operating cash with the exception of the pipe subsidiary. From 1999, a steady and significant improvement in performance was evident with an unfortunate second dip in 2001. Through the difficulties, the Group remained convinced that the strategic direction it set down since the early 1990s is the correct focus to prepare the group for AFTA in 2003 and WTO in 2008. The key elements of these strategic thrusts are as follows: 1) developing a network of own and friendly downstream wire customers to support upstream wire rod production; 2) pursuing product and market developments to broaden the Group from being overwhelmingly dependent on Malaysian construction activities to being a significant supplier of industrial grade steel wire to the local and international markets; and 3) providing value added solutions such as cut & bent bars and engineering mesh to local contractors. While the marketing network has been in place by the mid 1990s, the hard times meant the Group had to pursue its product and new market development programmes in earnest together with its continuous cost down effort. In view of the depressed demand and the expanded capacity, both prongs, which were pulling in opposite directions on cost control at the development stage, had to be succesfully executed for the Group's survival. The Board is pleased to report that the Group began to reap the fruits of its efforts in 2002. At the Company level, the intensive product and market development have seen our ability to produce only 3 construction grades wire rod in the past expanded to more than 50 construction and industrial grades now. The very substantial research & development costs were completely written off in past financial years as they were incurred. Conversion costs have dropped more than 10% below 1997 level and is targeted to drop a further 10% in the next two years to benchmark against the world's best. With the new grades of wire rod, we are able to capture up to 60% of domestic market share. Group volume has also continued to grow over the last 5 years and today is at a volume much higher than pre-crisis years. Brisk Steel Products Sdn Bhd ("BSP"), the mesh manufacturer, continues to command a significant market share, especially after taking over equipment from a previous competitor. Southern Wire Industries (Malaysia) Sdn Bhd ("SWI") has also evolved from an industrial wire producer with 90% local sales to one of more than 50% export sales. This augurs well for SWI to face the challenges of AFTA and WTO since this transformation was during the period when the Malaysian Government withdrew its protection of local wire products from 30% import duty to that of 8%. The sales volume of SWI has also not suffered despite the difficult macro environment. Unfortunately, Southern Pipe Industry (Malaysia) Sdn Bhd ("SPIM")’s performance has been curtailed by the twin blades of its own ambition and the disproportionate protection given to the country's sole hot rolled coil producer. SPIM lost heavily in 1997 to 2001 and was the only subsidiary to lose money on an operating basis. It lost ground in the traditional market to key competitors as it struggled with the new direction. SPIM recognised the short-lived nature of protection with AFTA coming and embarked on an initiative at new product and process development from the mid-1990s. This focus led to major capital expenditure and continuous R&D effort that proved to be nearly unbearable in a severe recession. At long last, some of the new products developed in the past have started to attract the attention of the market. And in 2002, SPIM benefited from a ban on the import of pipes to balance a little the overwhelming protection extended to Megasteel. Thus, SPIM broke even after 5 years of continuing losses. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 17

CHAIRMAN'S STATEMENT (CONTINUED) FINANCIAL REVIEW Year 2002 saw the continuation of government pump priming on the construction industry. This has boosted demand for construction related products since the beginning of the year. In the first half, a competitor temporarily closed its plants for restructuring. The combination of a surging demand with lower supply firmed up selling price. At the beginning of the third quarter, the unexpected breakdown of a transformer affected production and led to a temporary shortage in supply of high-grade steel products and the need to import billets from overseas. The third quarter also saw the repatriation of illegal foreign labor, which put a strain on the construction sector's heavy reliance on foreign labor. Consequently, the gathering momentum of the construction activity reversed., especially for the subsidiary companies. Nonetheless, the Company and the Group managed to turn around with a pretax profit of RM26.7 million in 2002 compared to a consolidated loss before taxation of RM52 million in 2001, the first since the Asian Currency Crisis in 1997. At RM1.5 billion, our consolidated turnover has increased to higher than pre-crisis level despite the loss of sales from the transformer breakdown.

REVIEW OF OPERATIONS Southern Steel Berhad Southern Steel Berhad's turnover at the company level was relatively unchanged in 2002 compared to 2001. However, operating results improved substantially to a profit before taxation of RM32 million compared to a loss of RM23 million in 2001. This is largely due to higher selling price in line with rising scrap costs and significant reduction in conversion costs. The performance of the Company could have been much better had there not been a loss in sales caused by the unexpected transformer breakdown and labor shortage. 2003 will be a challenging and exciting year for the Company. The Malaysian Government's continued proactive approach in tackling the uncertainty in the external environment and the projected 4.5% growth in the construction sector augurs well for the Company. The return of legalised foreign labour for the construction industry would ensure the pace of construction as contractors tried to catch up with the slow down last year. Although scrap cost continues to rise, wire rod, the mainstay of the group follows international pricing. Moreover the approval for a RM90 per MT price increase for steel bars in April and continued cost reduction efforts by the management are positive mitigating factors. With further TQM drive to improve productivity and quality together with new product development, the Company views AFTA as positive and anticipates better performance for the current financial year

SUBSIDIARY COMPANIES (a) Southern Wire Industries (Malaysia) Sdn Bhd The company achieved a breakeven position at operating level but incurred a loss before taxation of RM1.2 million after taking into account revaluation deficit of RM1.1million. This compares favorably with the loss of RM2.8 million in 2001, especially with the selling price dropping further by 4% during the year which was compensated by lower costs. Sales volume also increased by about 6% and, with export volume, increased further to nearly 50% of total sales. For the products manufactured by the company, AFTA has taken its full effect from January 1st, 2003. In the face of more intense competition and rising raw material costs, the management is striving to further improve its process know-how and productivity and aims to achieve a higher level of profit for the current financial year.

(b) Southern Pipe Industry (Malaysia) Sdn Bhd SPIM's performance improved substantially from a pre-tax loss of RM18.7 million in 2001 to a small profit of RM108,000 in 2002, with higher turnover of RM155 million compared to RM144 million. The better result was mainly due to improved market conditions following the introduction of import controls by the Malaysian Government on 15th March 2002 and cost reduction effort made by the company. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 18 Annual report

CHAIRMAN'S STATEMENT (CONTINUED) With AFTA implementation rule still unclear and prices of local hot rolled coils remaining high for 1Q 2003, local steel pipe producers will find the future very challenging especially if the restriction on raw material procurement is not removed. However, the Company hopes to make further inroads into new markets with the new products that have been developed.

(c) Brisk Steel Products Sdn Bhd For the year ended 31 December 2002, the company recorded a loss before tax of RM696,000 on the back of a turnover of RM175 million. Sales volume had grown by 7.3% over the previous year with market share strengthened further to 65%. Loss for the year was mainly due to write off of RM3.0 million assets and relocation cost of RM1.12 millions in line with the company's restructuring of its operations following the acquisition of a competitor’s productive equipment in July 2002. Without these items, the results for 2002 would have been comparable to the profit of RM2.3 million achieved in 2001. For 2003, the company is looking to lower overall conversion cost to capitalize on more efficient machinery and plant layout coupled with better logistics and manpower planning. The company would also continue to invest in IT application to support operations and also enhance competitive edge over competitors.

ASSOCIATED COMPANIES (a) Steel Industries (Sabah) Sdn Bhd ("SIS") SIS has benefited from the government's pump priming efforts and recovery of economy in the first half of 2002. However, in the second half, short supply of billets from SSB following the unexpected transformer breakdown caused temporary production stoppage in SIS which resorted to buying bars for resale to its customers. For this reason, SIS only achieved a profit before taxation of RM1 million as compared to RM3.4 million in 2001.

(b) NatSteelVina Company Limited ("NSV") In 2002, though there was a healthy growth of about 20% in construction steel demand, supply increased by 50% from the commissioning of several new rolling mills. Amidst this keen competition, and coupled with increase in billet cost and the weak Vietnam Dong against the greenback, NSV only managed to achieve a pre-tax profit of USD1.5 million compared to USD 3.8 million in year 2001. As there is no sign of a drop in billet cost and a stop in Dong devaluation in the near future, NSV is likely to have to struggle to be profitable in 2003.

(c) Southern NatSteel (Xiamen) Ltd ("SNXL") 2002 was a difficult year for SNXL as severe shortage of imported as well as locally supplied billets caused billet costs to surge above the price level of finished products. However, the company continued to be profitable and recorded an after- tax profit of RMB 10.95 million despite a declined turnover of 1.4% to RMB 716.77 million. This was largely due to the company's efforts to control inventory and introducing cost-cutting measures. The impact of these measures has contributed to the achievements for the year. 2003 will pose another challenging year for SNXL with the extremely limited source and stiff price of billet supply. However, through successful business strategies on production and sales, continuously striving for higher productivity and cost efficiency, SNXL is expected to maintain its profitability in year 2003.

(d) NatSteel Trade International Pte Ltd The company reported a before tax profit of S$2.8 million on a turnover of S$615 million. This compares with a before tax profit of S$3.5 million on a turnover of S$414 million for financial year 2001. The 48.7% increase in turnover was due to increase in billet sales from Brazil. However, profit was lower due to lower interest income as less sales were done on trade finance. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 19

CHAIRMAN'S STATEMENT (CONTINUED) DIVIDEND After considering the overall performance of the Group, the Board of Directors is pleased to recommend a first and final tax exempt dividend of 3% for the financial year ended 31 December 2002 which shall be subject to the approval of shareholders at the forthcoming annual general meeting to be held on 18 June 2003.

CORPORATE DEVELOPMENTS During the period, our mesh subsidiary company Brisk Steel Products Malaysia Sdn Bhd completed its purchase of production facilities of a competitor. This was a strategic move to consolidate its position in the wire mesh market. During the period, the Company also proposed to issue RM141 million 5.5% Irredeemable Convertible Unsecured Loan Stocks ("ICULS") at a nominal price of RM1 each on rights issue basis as part of its US Term Loan Restructuring Scheme to raise the initial payment required under the said loan restructuring scheme. The initial payment required of RM95 million would be paid within 90 days of the last approval being obtained and the balance of the US$ term loan is to be repaid over 11 instalments commencing from 15 June 2003 to 15 June 2008. The ICULS issue is expected to be completed in June / July.

APPRECIATION AND ACKNOWLEDGEMENT On behalf of the Board, I would like to place on record my appreciation to Mr. Soon Seong Keat who had resigned as Director for his past services. On the same note, I wish to welcome on Board, our new Director, Mr. Yap Peng Leong. I would also like to take this opportunity to thank our past long service directors, Y. Bhg. Dato' Seri Tan Hoay Eam and his alternate, Y. Bhg. Dato' Seri Hwang Sing Lue, and Mr. Chuah Chuan Thye for their past guidance and contributions to the Group. I would also like to thank the Management Team and staff of all levels for their efforts and tremendous contribution to the Group's excellent achievements especially during the past 5 unprecedented challenging years. The progressive realisation of the Group's vision, mission and strategy depends ultimately on their ability and commitment to the Group. Their continuing loyalty and commitment inspire our confidence in the future of Southern Steel Berhad Group. On behalf of the board, I would also like to place on record its appreciation to all shareholders, customers, bankers, business associates and government authorities for their continuing strong support and close cooperation. In closing, the Board of Directors reaffirms our commitment to our shareholders to further enhance the value of their investment in the Southern Steel Group. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 20 Annual report

PENYATA PENGERUSI Lima tahun yang lepas sejak tahun kewangan 1997 sehingga tahun 2001 merupakan masa yang sukar bagi Kumpulan ini. Dalam masa 5 tahun tersebut Kumpulan ini telah mengalami kerugian berjumlah RM262 Juta, yang mana RM144 juta atau 55% daripada jumlah tersebut merupakan kerugian dalam tahun 1998. Sebahagian besar kerugian ini adalah disebabkan pertukaran matawang asing. Sungguhpun Kumpulan ini mengalami kerugian yang besar, namun semua syarikat dalam Kumpulan, kecuali syarikat paip telah memperolehi wang tunai dari operasi. Sejak tahun 1999 pemulihan sudah agak ketara kecuali tahun 2001 yang telah menurun untuk kali kedua. Dalam menempuh kesukaran, Kumpulan ini yakin dengan haluan strategi yang telah diterapkan sejak awal 1990an dan merupakan fokus yang tepat dalam penyediaan kearah pelaksanaan AFTA 2003 dan WTO 2008. Unsur-unsur penting dalam strategi ini adalah seperti berikut: 1) Memajukan rangkaian sendiri dan rakan pelanggan dawai wire bagi menyokong produksi dawai rod pada peringkat hiliran atas. 2) Memajukan pembangunan produk dan memperluaskan pemasaran yang terlalu bergantung kepada industri pembinaan di Malaysia kepada pembekal utama wire gred sektor industri dalam pasaran domestik dan antarabangsa. 3) Menyediakan pilihan nilai tambah produk seperti 'cut & bent bars' dan 'engineering mesh' kepada kontraktor tempatan. Walaupun rangkaian pemasaran telah dilaksanakan sejak pertengahan 1990an, Kumpulan ini perlu terus menerokai pasaran baru dan program kemajuan produk serta usaha berterusan dalam mengurangkan kos. Memandangkan kepada permintaan yang menurun dan pertambahan kapasiti, kawalan kos pada peringkat pembangunan perlu dilaksanakan dengan berhati- hati bagi menjamin Kumpulan ini terus berdaya maju. Lembaga Pengarah dengan sukacitanya memaklumkan bahawa Kumpulan ini telah mula mendapat keuntungan pada tahun 2002. Pada tahap Syarikat, pembangunan produk dan pasaran intensif telah menyaksikan kemampuan Syarikat menghasilkan lebih daripada 50 jenis dawai rod untuk gred pembinaan dan industries, berbanding hanya 3 jenis sahaja sebelumnya. Kos penyelidikan dan pembangunan yang besar telah diserapkan pada tahun kewangan berkenaan. Kos konversi telah menurun lebih daripada 10% pada tahap tahun 1997 dan diramalkan untuk menurun 10% lagi dalam 2 tahun akan datang selaras dengan tanda aras syarikat terbaik didunia. Dengan dawai rod gred baru, kita berupaya menguasai sehingga 60% pasaran domestik dan volum Kumpulan ini terus berkembang dalam masa 5 tahun yang lepas dan kini volum Kumpulan ini adalah lebih tinggi berbanding sebelum permulaan krisis. Brisk Steel Products Sdn Bhd (BSP), pengeluar mesh terus menguasai pasaran yang signifikan terutama apabila ianya mengambil alih peralatan dan kelengkapan daripada bekas pesaing. Southern Wire Industries (Malaysia) Sdn Bhd (SWI) juga telah berkembang dari pengeluar industri dawai dengan 90% jualan domestik kepada lebih 50% jualan ekspot. Ini membolehkan SWI untuk menghadapi cabaran AFTA dan WTO yang mana peralihan ini berlaku ketika kerajaan Malaysia menarik balik duti perlindungan terhadap produk dawai tempatan dari 30% duti impot kepada 8%. Volum jualan SWI tidak terjejas walaupun terpaksa menghadapi persekitaran makro yang sukar. Malangnya prestasi Southern Pipe Industry (Malaysia) Sdn Bhd (SPIM) merosot akibat daripada perlindungan yang tidak seimbang yang diberikan kepada pengeluar tunggal 'hot rolled coil'. SPIM mengalami kerugian yang teruk sejak tahun 1997 hingga 2001 dan merupakan subsidiari tunggal mengalami kerugian pada peringkat operasi. SPIM kehilangan tempat dalam pasaran tradisi kepada pesaing utama ketika ianya sedang berusaha kehaluan baru. SPIM menyedari yang perlindungan adalah bersifat sementara setelah mengambil kira kedatangan AFTA, telah mengambil inisiatif sejak pertengahan 1990an terhadap pembangunan produk dan proses. Fokus kearah ini memerlukan perbelanjaan modal yang besar dan R&D yang berterusan yang mana hampir-hampir tidak tertanggung dalam situasi kegawatan yang meruncing. Akhirnya setengah daripada produk-produk yang dimajukan pada masa yang lalu mula menarik perhatian di pasaran dan pada penghujung tahun 2002, SPIM mendapat faedah daripada sekatan impot terhadap besi paip yang bertujuan menyempurnakan perlindungan yang menyeluruh kepada Megasteel. Oleh itu, SPIM beroleh keuntungan sifar setelah mengalami kerugian selama 5 tahun berturut-turut. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 21

PENYATA PENGERUSI (SAMBUNGAN) ULASAN KEWANGAN Dalam Tahun 2002 Kerajaan berusaha dengan berterusan membantu sektor pembinaan. Ini telah meningkatnya permintaan terhadap produk binaan sejak awal tahun. Dalam setengah tahun pertama, satu pesaing menutup sementara operasi mereka bagi tujuan penyusunan semula. Kombinasi permintaan yang mendadak dengan penawaran yang rendah telah meneguhkan harga jualan. Pada suku ketiga tahun 2002, kerosakan yang tidak disangka-sangka berlaku terhadap mesin transformer yang menjejaskan pengeluaran besi yang memerlukan impot bagi mengatasi kekurangan sementara besi gred tinggi. Pada suku ketiga juga terdapat penghantaran balik buruh asing yang telah menjejaskan sektor binaan yang terlalu bergantung kepada tenaga mereka. Meskipun demikian Syarikat dan Kumpulan berjaya mencatat keuntungan sebelum cukai buat pertama kali sejak Krisis matawang Asia sebanyak RM26.7 juta pada tahun 2002 berbanding dengan kerugian sebelum cukai sebanyak RM52 juta pada tahun 2001. Perolehan berjumlah RM1.5 billion pada peringkat kumpulan adalah lebih tinggi berbanding pada era sebelum krisis walaupun mengalami kerosakan mesin transformer.

TINJAUAN SEMULA OPERASI Southern Steel Berhad Perolehan Southern Steel Berhad pada peringkat syarikat secara relatif adalah tidak berubah pada tahun 2002 berbanding tahun 2001. Walaupun demikian, keputusan operasi sebelum cukai telah meningkat kepada RM32 juta berbanding dengan kerugian sebanyak RM23 juta pada tahun 2001. Ini adalah ekoran daripada harga jualan yang tinggi sejajar dengan peningkatan kos besi buruk dan pengurangan yang signifikan dalam kos konversi. Prestasi syarikat akan menjadi lebih baik sekiranya tidak terdapat kehilangan jualan akibat kerosakan mesin transformer dan kekurangan tenaga buruh asing. Tahun 2003 akan merupakan tahun yang penuh cabaran dan debaran bagi syarikat. Kesungguhan Kerajaan Malaysia meneruskan pendekatan proaktif untuk bertindak terhadap keadaan luaran yang tidak menentu dan meramalkan pertumbuhan sebanyak 4.5% dalam sektor pembinaan adalah sangat baik untuk Syarikat. Kehadiran semula tenaga buruh asing secara sah ke dalam sektor pembinaan akan merancakkan sektor ini memandangkan kontraktor perlu mempercepatkan projek yang terlewat disiapkan pada tahun lepas. Walaupun kos besi buangan terus meningkat, harga rod dawai yang merupakan produk utama dalam Kumpulan ini adalah berdasarkan pada harga antarabangsa. Lagipun kelulusan kenaikan harga sebanyak RM90 setan metrik yang diperolehi dalam bulan April 2003 serta usaha berterusan dalam mengurangkan kos oleh pihak pengurusan merupakan satu faktor tanda positif. Dengan perlaksanaan TQM untuk meningkatkan produktiviti dan kualiti serta pembangunan produk baru, Syarikat melihat AFTA sebagai positif dan menjangka prestasi yang lebih baik untuk tahun kewangan semasa.

SYARIKAT SUBSIDIARI a) Southern Wire Industries (Malaysia) Sdn Bhd Syarikat mencapai keuntungan sifar pada tahap operasi tetapi mengalami kerugian sebelum cukai sebanyak RM1.2 juta selepas mengambil kira penilaian defisit RM1.1 juta. Keadaan ini adalah lebih baik berbanding dengan kerugian sebanyak RM2.8 juta pada tahun 2001, terutama sekali ketika harga jualan telah menurun sebanyak 4% dalam tahun lapuran yang mana telah dapat ditampung oleh kos yang rendah. Volum jualan juga meningkat sebanyak 6% dan expot volum telah meningkat kepada hampir 50% daripada jumlah jualan. Untuk produk yang dikeluarkan oleh syarikat, AFTA telah mula diimplementasi sejak 1hb Januari, 2003. Dalam menghadapi persaingan yang hebat dan kenaikan kos bahan-bahan mentah, pihak pengurusan berusaha untuk memperbaiki proses "know-how" dan produktiviti yang bertujuan untuk mencapai paras keuntungan yang tinggi untuk tahun kewangan semasa. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 22 Annual report

PENYATA PENGERUSI (SAMBUNGAN) b) Southern Pipe Industry (Malaysia) Sdn Bhd Prestasi SPIM bertambah baik dengan kerugian sebelum cukai sebanyak RM18.7 juta pada tahun 2001 kepada keuntungan kecil sebanyak RM108,000 pada tahun 2002 dengan perolehan yang tinggi sebanyak RM155 juta berbanding RM144 juta pada tahun sebelumnya. Pencapaian yang baik ini adalah disebabkan oleh keadaan pasaran yang bertambah baik dan diikuti dengan pengenalan kawalan impot oleh kerajaan Malaysia sejak 15 hb Mac, 2002 disamping usaha pengurangan kos oleh Syarikat. Berikutan pelaksanaan peraturan AFTA yang kurang jelas dan harga 'hot rolled coils' masih tetap tinggi suku tahun pertama 2003 para pengeluar paip besi domestik mendapati masa depan adalah mencabar terutama sekali jika larangan pembelian bahan mentah tidak dimansuhkan. Namun begitu, Syarikat berharap untuk menembus pasaran baru dengan produk baru yang telah dihasilkan.

c) Brisk Steel Products Sdn Bhd Untuk tahun berakhir 31 Disembar 2002, Syarikat mencatat kerugian sebelum cukai sebanyak RM696,000 dengan perolehan sebanyak RM175 juta. Volum Jualan telah meningkat sebanyak 7.3% berbanding tahun lepas dan perkongsian pasaran diperkukuhkan kepada 65%. Kerugian dalam tahun kewangan semasa adalah disebabkan oleh penghapusan aset berjumlah RM3.0 juta dan kos lokasi semula sebanyak RM1.12 juta selaras dengan penstrukturan operasi Syarikat berikutan dengan pengambilan peralatan dan kelengkapan dari bekas pesaing pada bulan Julai 2002. Tanpa perkara-perkara ini, pencapaian 2002 akan bersamaan dengan perbandingan keuntungan yang diperolehi sebanyak RM2.3 juta pada tahun 2001. Untuk tahun 2003, Syarikat sedang berusaha untuk mengurangkan kos konversi bagi mengkapitalisasi loji dan mesin yang lebih effisen dan kemudahan logistik serta perancangan guna tenaga yang lebih baik. Syarikat juga akan terus melabur dalam aplikasi IT bagi menyokong operasi dan memperkukuhkan kedudukan Syarikat terhadap pesaing.

SYARIKAT-SYARIKAT BERSEKUTU a) Steel Industries (Sabah) Sdn Bhd (SIS) SIS telah mendapat faedah daripada usaha kerajaan dalam memulihkan ekonomi pada setengah tahun pertama 2002. Bagaimanapun, pada pertengahan kedua, ketidakcukupan pembekalan billet dari SSB berikutan dengan kerosakan mesin transformer yang tidak diduga telah menyebabkan pemberhentian sementara pengeluaran di SIS dan terpaksa membeli besi keluli untuk dijual semula kepada pelanggannya. Atas sebab ini, SIS hanya mencapai keuntungan bersih sebelum cukai sebanyak RM1 juta berbanding dengan RM3.4 juta pada tahun 2001.

b)NatSteelVina Company Limited (NSV) Pada tahun 2002, walaupun pertumbuhan yang sihat sebanyak 20% dalam permintaan besi binaan, penawaran meningkat sebanyak 50% berikutan beroperasinya beberapa kilang pengolek (rolling mill) yang baru. Ekoran daripada persaingan yang sengit serta peningkatan harga billet dan kelemahan matawang Vietnam Dong keatas dollar Amerika, NSV hanya berupaya mencatat keuntungan bersih sebelum cukai sebanyak USD1.5 juta berbanding dengan USD3.8 juta pada tahun 2001. Oleh kerana tiada petanda menunjukkan penurunan harga billet dan kelemahan matawang Vietnam Dong masih berterusan, NSV terpaksa berjuang untuk memperolehi keuntungan pada tahun 2003.

c) Southern NatSteel (Xiamen) Ltd (SNXL) Tahun 2002 merupakan tahun yang sukar bagi SNXL kerana bekalan impot dan domestik billet berkurangan yang menyebabkan kos billet meningkat lebih daripada harga produk siap. Namun demikian, Syarikat terus mencatat keuntungan bersih sebelum cukai sebanyak RMB 10.95 juta meskipun berlaku penurunan dalam perolehan sebanyak 1.4% kepada RMB 716.77 juta. Ini adalah disebabkan oleh usaha-usaha Syarikat dalam mengawal inventori serta memperkenalkan langkah-langkah pengurangan kos. Kesan daripada langkah-langkah ini telah menyumbang kepada pencapaian dalam tahun. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 23

PENYATA PENGERUSI (SAMBUNGAN) Tahun 2003 akan meletakkan SNXL dalam tahun yang penuh dengan cabaran dengan sumber yang terhad dan harga bekalan billet yang tinggi. Namun begitu, melalui strategi perniagaan yang berjaya keatas jualan, pengeluaran dan usaha yang berterusan untuk mencapai produktiviti yang tinggi serta kos yang efisien, SNXL dijangka akan mengekang keuntungan pada tahun 2003. d) NatSteel Trade International Pte Ltd Syarikat mencatat keuntungan sebelum cukai sebanyak S$2.8 juta dengan perolehan sebanyak S$615 juta, berbanding dengan keuntungan sebelum cukai sebanyak S$3.5 juta dan perolehan sebanyak S$414 juta untuk tahun kewangan 2001.Peningkatan perolehan sebanyak 48.7% adalah disebabkan oleh peningkatan dalam jualan billet di Brazil. Namun demikian, keuntungan adalah rendah disebabkan oleh faedah pendapatan yang berkurangan kerana jualan kurang dijalankan melalui urusniga biaya kewangan.

DIVIDEN Selepas mengambil kira keseluruhan prestasi Kumpulan, Lembaga Pengarah dengan sukacitanya mencadangkan dividen pertama dan terakhir dikecualikan cukai sebanyak 3% untuk tahun kewangan berakhir 31 Disembar 2002 yang tertakluk kepada persetujuan pemegang-pemegang syer pada Mesyuarat Agung Tahunan yang akan datang pada 18 Jun 2003.

PEMBANGUNAN KORPORAT Dalam tahun semasa syarikat subsidiari, Brisk Steel Products Sdn Bhd telah menyempurnakan pembelian kelengkapan pengeluaran daripada bekas pesaing dan merupakan langkah strategik dalam mengukuhkan kedudukan dalam pasaran dawai mesh. Syarikat juga telah membuat cadangan penerbitan hak 141 juta Stok Pinjaman Tidak Bercagar Boleh Tukar Tidak Boleh Tebus ("SPTBBTTBT") pada kadar faedah 5.5% dengan harga nominal RM1.00 setiap satu yang merupakan sebahagian daripada terma dalam penyusunan semula pinjaman dolar Amerika bagi bayaran ansuran pertama. Bayaran ansuran pertama sebanyak RM95 juta dikehendaki dibuat dalam masa 90 hari selepas kelulusan terakhir diperolehi dan bakinya akan dijelaskan melalui 11 ansuran yang bermula dari 15hb June 2003 hingga 15hb June 2008. SPTBBTTBT telah memperolehi semua kelulusan dan dijangka siap dalam bulan Jun. Aksais korporat ini dijangka akan siap sepenuhnya dalam masa terdekat ini.

PENGHARGAAN DAN PEMBERITAHUAN Bagi pihak lembaga Pengarah, saya ingin menyampaikan penghargaan kepada Encik Soon Seong Keat yang telah meletak jawatan terhadap perkhidmatan yang telah beliau sumbangkan dan pada masa yang sama, saya ingin mengucapkan selamat datang ke dalam Lembaga Pengarah kepada pengarah baru, Encik Yap Peng Leong. Saya juga ingin mengambil kesempatan ini untuk mengucapkan ribuan terima kasih kepada bekas pengarah yang telah lama memberikan perkhidmantan mereka iaitu, Y, Bhg. Dato' Seri Tan Hoay Eam dan juga kepada alternat beliau, Y. Bhg. Dato' Seri Hwang Sing Lue dan juga Encik Chuah Chuan Thye. Saya juga ingin mengucapkan terima kasih kepada pengurusan dan staf Kumpulan dari pelbagai peringkat diatas segala usaha dan sumbangan mereka yang membawa kepada kecermelangan Kumpulan ini terutama sekali pada masa 5 tahun yang lepas yang penuh dengan cabaran yang tidak disangka-sangka. Realisasi visi, misi dan strategi Kumpulan bergantung sama sekali kepada kebolehan dan komitmen mereka kepada Kumpulan. Kesetiaan serta komitmen mereka yang berterusan menyemarakkan keyakinan terhadap masa depan Kumpulan Southern Steel Berhad . Bagi pihak lembaga pengarah, saya juga ingin merakamkan penghargaan kepada semua pemegang syer, pelanggan- pelanggan, kakitangan bank, peniaga bersekutu dan pihak berkuasa kerajaan diatas sokongan yang kuat dan kerjasama yang berterusan. Sebagai penutup, Lembaga Pengarah sekali lagi ingin mengesahkan komitmen mereka terhadap para pemegang syer untuk mempertingkatkan lagi nilai pelaburan mereka dalam Kumpulan Southern Steel. This page has been deliberately left blank. SOUTHERN STEEL BERHAD5283-X LAPORAN TAHUNAN 2002 Annual report

FINANCIAL STATEMENTS

Directors' Report 26

Statement by Directors 30

Statutory Declaration 30

Report of the Auditors to the Members 31

Income Statements 32

Balance Sheets 33

Consolidated Statement of Changes in Equity 34

Company Statement of Changes in Equity 35

Cash Flow Statements 36

Notes to the Financial Statements 38 Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 26 Annual report

DIRECTORS' REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2002 The Directors present their report to the members together with the audited financial statements of the Group and the Company for the financial year ended 31 December 2002.

1. PRINCIPAL ACTIVITIES The principal activities of the Company are the manufacturing of, sales and trading in billets, steel bars and wire rods. The principal activities of its subsidiary companies and associated companies are described in Notes 16 and 17 to the financial statements. There have been no significant changes in the nature of these activities during the financial year.

2. RESULTS Group Company RM'000 RM'000 Profit before taxation 26,742 32,120 Taxation 123 0 Profit after taxation 26,865 32,120 Minority interests 3 0 Net profit for the financial year 26,868 32,120

3. DIVIDENDS No dividend has been paid or declared since 31 December 2001. A 3% per share of tax exempt final dividend has been proposed by the Directors for the financial year ended 31 December 2002. This proposed final dividend is subject to the approval of the shareholders at the forthcoming Annual General Meeting.

4. RESERVES AND PROVISIONS There were no material transfers to or from reserves and provisions during the financial year except for those disclosed in the financial statements.

5. ISSUE OF SHARES AND DEBENTURES The Company has not issued any new shares or debentures during the financial year. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 27

DIRECTORS' REPORT (CONTINUED) 6. DIRECTORS The Directors in office since the date of the last report are: Y. Bhg Dato' Abdullah Mohd Yusof (Chairman)* Dr. Tan Tat Wai (Group Managing Director) Y.A. Bhg Tun Dato' Seri Dr. Lim Chong Eu * Y. Bhg Dato' Hj Shaharuddin bin Hj Haron * Ang Kong Hua Kwek Leng San Tang Hong Cheong Chong Wai Siak Chang Meng (Alternate to Chong Wai Siak) Soon Seong Keat (Resigned on 27 June 2002) Yap Peng Leong (Appointed on 27 June 2002)

* Independent Non-Executive Director

7. DIRECTORS' INTERESTS According to the Register of Directors' Shareholdings kept by the Company for the purpose of Section 135 of the Companies Act, 1965, the interests of Directors in office at the end of the financial year in shares in the Company and its related corporations during the financial year are as follows: Shares in the Company Ordinary shares of RM1.00 each At 1.1.2002 Acquired Disposed At 31.12.2002 Y. Bhg Dato' Abdullah Mohd Yusof - direct 20,000 0 (20,000) 0 Dr. Tan Tat Wai - direct 10,000 0 0 10,000 - deemed interest 21,870,876 0 0 21,870,876

8. DIRECTORS' BENEFITS Since the end of the previous financial year, no Director has received or become entitled to receive a benefit (other than the fees and other emoluments shown in Notes 5 and 27 to the financial statements) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which he is a member, or with a company in which he has a substantial financial interest. During and at the end of the financial year, no arrangement subsisted to which the Company is a party, with the object or objects of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate except for the letter of undertaking dated 18 March 2002 from Southern Amalgamated Co Sdn Bhd (in which Dr Tan Tat Wai has a deemed interest) for the purpose of subscribing to its rights entitlement in aggregate of RM10,935,438 nominal value of the Company's proposed issue of Irredeemable Convertible Unsecured Loan Stocks. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 28 Annual report

DIRECTORS' REPORT (CONTINUED) 9. STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS Before the financial statements of the Group and the Company were made out, the Directors took reasonable steps: (a) to ascertain that actions have been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts, and have satisfied themselves that all known bad debts have been written off and that adequate allowance have been made for doubtful debts; and (b) to ensure that any current assets, other than debts, which were unlikely to realise in the ordinary course of business their values as shown in the accounting records of the Group and the Company have been written down to an amount which they might be expected so to realise. At the date of this report, the Directors are not aware of any circumstances: (a) which would render the amounts written off for bad debts or the amount of the allowance for doubtful debts in the financial statements of the Group and the Company inadequate to any substantial extent; (b) which would render the values attributed to current assets in the financial statements of the Group and the Company misleading; or (c) which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and the Company misleading or inappropriate. No contingent liability or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group or the Company to meet their obligations as and when they fall due. At the date of this report, there does not exist: (a) any charge on the assets of the Group and the Company which has arisen since the end of the financial year which secures the liability of any other person; or (b) any contingent liability of the Group and the Company which has arisen since the end of the financial year.

10. OTHER STATUTORY INFORMATION At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements which would render any amount stated in the financial statements misleading. In the opinion of the Directors, (a) the results of the Group's and the Company's operations during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature; and (b) there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely to affect substantially the results of the operations of the Group and the Company for the current financial year except as disclosed in Note 28 to the financial statements. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 29

DIRECTORS' REPORT (CONTINUED) 11. AUDITORS The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office. Signed on behalf of the Board of Directors in accordance with their resolution dated 9 April 2003.

Y. Bhg Dato' Abdullah Mohd Yusof Chairman

Dr. Tan Tat Wai Group Managing Director Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 30 Annual report

STATEMENT BY DIRECTORS PURSUANT TO SECTION 169(15) OF THE COMPANIES ACT, 1965 We, the undersigned, being two of the Directors of Southern Steel Berhad, state that in the opinion of the Directors: (i) the accompanying financial statements set out on pages 32 to 66 are drawn up so as to give a true and fair view of the state of affairs of the Group and the Company as at 31 December 2002 and of the results and cash flows of the Group and the Company for the financial year ended on that date; and (ii) the financial statements of the Group and the Company have been made out in accordance with the applicable approved accounting standards in Malaysia and the provisions of the Companies Act, 1965. Signed on behalf of the Board of Directors in accordance with their resolution dated 9 April 2003.

Y. Bhg Dato' Abdullah Mohd Yusof Chairman

Dr. Tan Tat Wai Group Managing Director

STATUTORY DECLARATION PURSUANT TO SECTION 169(16) OF THE COMPANIES ACT, 1965 I, Ang Meng Chuan, being the Group Financial Controller primarily responsible for the financial management of Southern Steel Berhad, do solemnly and sincerely declare that the financial statements set out on pages 32 to 66 are in my opinion, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960.

Ang Meng Chuan Subscribed and solemnly declared by the abovenamed Ang Meng Chuan at Georgetown in the State of Penang on 9 April 2003, before me,

Huang Peter Commissioner for Oaths (No. P006) Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 31

REPORT OF THE AUDITORS TO THE MEMBERS OF SOUTHERN STEEL BERHAD We have audited the financial statements set out on pages 32 to 66. These financial statements are the responsibility of the Company's Directors. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved auditing standards in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Directors, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion: (a) the financial statements have been prepared in accordance with the provisions of the Companies Act, 1965 and the applicable approved accounting standards in Malaysia so as to give a true and fair view of: (i) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements; and (ii) the state of affairs of the Group and the Company as at 31 December 2002 and of the results and cash flows of the Group and the Company for the financial year ended on that date; and (b) the accounting and other records and the registers required by the Act to be kept by the Company and by the subsidiary companies of which we have acted as auditors have been properly kept in accordance with the provisions of the Act. The names of the subsidiary companies of which we have not acted as auditors are indicated in Note 16 to the financial statements. We have considered the financial statements of these subsidiary companies and the auditors' reports thereon. We are satisfied that the financial statements of the subsidiary companies that have been consolidated with the Company's financial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes. The auditors' reports on the financial statements of the subsidiary companies were not subject to any qualification and did not include any comment made under sub-section (3) of Section 174 of the Act.

PRICEWATERHOUSECOOPERS (No. AF-1146) Chartered Accountants

CHO CHOO MENG (2082/09/04 (J)) Partner of the firm 9 April 2003 Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 32 Annual report

INCOME STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2002 In RM'000 unless otherwise stated Group Company Note 2002 2001 2002 2001 REVENUE 1,460,322 1,373,871 1,102,787 1,037,238 COST OF SALES (1,290,872) (1,256,615) (988,973) (955,437) GROSS PROFIT 169,450 117,256 113,814 81,801 OTHER OPERATING INCOME 5,708 6,757 7,256 27,903 ADMINISTRATION EXPENSES (43,233) (43,737) (21,662) (23,020) DISTRIBUTION COSTS (42,410) (44,663) (27,169) (27,426) EXCEPTIONAL ITEM 4 0 (17,503) 0 (17,503) OTHER OPERATING EXPENSES (14,569) (14,210) (1,427) (7,641) OPERATING PROFIT 5 74,946 3,900 70,812 34,114 FINANCE COST 6 (49,384) (69,329) (38,692) (57,602) SHARE OF RESULTS OF ASSOCIATED COMPANIES 1,180 13,221 0 0 PROFIT / (LOSS) FROM ORDINARY ACTIVITIES BEFORE TAXATION 26,742 (52,208) 32,120 (23,488) TAXATION OF THE COMPANY AND SUBSIDIARIES 7 815 (1,203) 0 (10) SHARE OF TAXES OF ASSOCIATED COMPANIES (692) (1,562) 0 0 123 (2,765) 0 (10) PROFIT / (LOSS) FROM ORDINARY ACTIVITIES AFTER TAXATION 26,865 (54,973) 32,120 (23,498) MINORITY INTERESTS 3 3,077 0 0 NET PROFIT / (LOSS) FOR THE FINANCIAL YEAR 26,868 (51,896) 32,120 (23,498) EARNINGS / (LOSS) PER SHARE 8 - BASIC (SEN) 9.5 (18.4) - FULLY DILUTED (SEN) 9.5 (18.4) DIVIDEND PER SHARE (SEN) 9 3 0 3 0

The accompanying notes form an integral part of the financial statements. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 33

BALANCE SHEETS AS AT 31 DECEMBER 2002 In RM'000 unless otherwise stated Group Company Note 2002 2001 2002 2001 Share capital 10 282,353 282,353 282,353 282,353 Reserves 11 128,664 90,378 139,619 98,871 SHAREHOLDERS' FUNDS 411,017 372,731 421,972 381,224 MINORITY INTERESTS 5,797 5,622 0 0 NON-CURRENT LIABILITY Long term loan 12 437,752 541,330 402,820 507,879 DEFERRED LIABILITIES Deferred taxation 13 6,949 7,290 0 0 Provision for retirement benefits and other provisions 14 26,598 23,954 14,569 11,280 888,113 950,927 839,361 900,383 NON-CURRENT ASSETS Property, plant and equipment 15 1,132,979 1,174,020 817,417 855,230 Subsidiary companies 16 0 0 393,034 393,034 Associated companies 17 63,128 63,749 46,896 46,896 Other investments 18 708 708 708 708 Goodwill on consolidation 19 59,890 63,741 0 0 CURRENT ASSETS Inventories 20 330,512 312,719 234,923 232,073 Trade and other receivables 21 137,050 141,636 47,585 50,673 Tax recoverable 3,823 1,909 3,585 3,584 Other investments 18 128 0 0 0 Deposits with licensed banks 21,000 17,150 21,000 14,000 Bank and cash balances 13,589 6,530 7,857 1,355 506,102 479,944 314,950 301,685 CURRENT LIABILITIES Trade and other payables 22 188,293 146,038 253,955 221,706 Short term borrowings 23 683,931 682,528 478,572 474,338 Provision for taxation 2,470 2,669 1,117 1,126 874,694 831,235 733,644 697,170 NET CURRENT LIABILITIES (368,592) (351,291) (418,694) (395,485) 888,113 950,927 839,361 900,383

The accompanying notes form an integral part of the financial statements. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 34 Annual report

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2002 In RM'000 unless otherwise stated Issued and fully paid ordinary shares of RM1 each Non-distributable Exchange Revalua- Fluctua- Accu- Share Share tion Merger Capital tion mulated Capital Premium Reserve Reserve Reserve Reserve Losses Total At 1 January 2001 282,353 34,843 97,334 30,000 3,457 11,768 (34,107) 425,648 Exchange differences for associated companies 0 0 0 0 0 (1,021) 0 (1,021) Revaluation reserve realised upon disposal 0 0 (10,209) 0 0 0 10,209 0 Net gain/(loss) not recognised in income statement 0 0 (10,209) 0 0 (1,021) 10,209 (1,021) Net loss for the financial year 0 0 0 0 0 0 (51,896) (51,896) At 31 December 2001 282,353 34,843 87,125 30,000 3,457 10,747 (75,794) 372,731

At 1 January 2002 282,353 34,843 87,125 30,000 3,457 10,747 (75,794) 372,731 Exchange differences for associated companies 0 0 0 0 0 668 0 668 Net revaluation surplus 0 0 11,174 0 0 0 0 11,174 Revaluation reserve realised upon written off 0 0 (424) 0 0 0 0 (424) Net gain not recognised in income statement 0 0 10,750 0 0 668 0 11,418 Net profit for the financial year 0 0 0 0 0 0 26,868 26,868 At 31 December 2002 282,353 34,843 97,875 30,000 3,457 11,415 (48,926) 411,017

The accompanying notes form an integral part of the financial statements. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 35

COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2002 In RM'000 unless otherwise stated Issued and fully paid ordinary shares of RM 1 each Non-distributable (Accumulated Losses)/ Share Share Revaluation Merger Retained Capital Premium Reserve Reserve Profit Total At 1 January 2001 282,353 34,843 51,956 33,600 1,970 404,722 Net loss for the financial year 0 0 0 0 (23,498) (23,498) At 31 December 2001 282,353 34,843 51,956 33,600 (21,528) 381,224

At 1 January 2002 282,353 34,843 51,956 33,600 (21,528) 381,224 Revaluation surplus 0 0 8,628 0 0 8,628 Net gain not recognised in income statement 0 0 8,628 0 0 8,628 Net profit for the financial year 0 0 0 0 32,120 32,120 At 31 December 2002 282,353 34,843 60,584 33,600 10,592 421,972

The accompanying notes form an integral part of the financial statements. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 36 Annual report

CASH FLOW STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2002 In RM'000 unless otherwise stated Group Company 2002 2001 2002 2001 CASH FLOWS FROM OPERATING ACTIVITIES Net profit / (loss) for the financial year 26,868 (51,896) 32,120 (23,498) Adjustments for: Share of results of associated companies (1,180) (13,221) 0 0 Taxation (123) 2,765 0 10 Minority interests (3) (3,077) 0 0 Amortisation of goodwill 3,851 3,762 0 0 Bad debts written off 148 19 0 0 Dividend income (6) 0 (1,783) (21,874) Interest expense 49,384 69,329 38,692 57,602 Interest income (281) (287) (2,793) (2,757) Net unrealised foreign exchange loss 0 39 0 0 Net unrealised foreign exchange gain (86) 0 0 0 Property, plant and equipment: Depreciation 86,900 87,969 55,184 56,603 Written off 3,446 86 0 18 Gain on disposals (100) (2,997) (59) (236) Allowance for diminution in value of quoted investments 0 5,726 0 5,726 Inventories written off 0 17,503 0 17,503 Inventories written down to net realisable value 763 1,398 292 758 Provision for retirement benefits 3,531 3,150 3,634 1,596 Revaluation deficit / (surplus) 193 0 (6) 0 Write down of short term quoted investments 298 0 0 0 173,603 120,268 125,281 91,451 Working capital changes: Inventories (18,556) 58,767 (3,142) 40,030 Trade and other receivables 4,436 42,770 2,426 27,943 Trade and other payables 47,722 (62,297) 37,441 (58,980) Cash generated from operations 207,205 159,508 162,006 100,444 Interest paid (57,075) (77,038) (46,414) (65,312) Income tax paid (1,639) (649) (10) (55) Retirement benefits paid (1,105) (1,228) (345) (403) Net cash generated from operating activities 147,386 80,593 115,237 34,674

The accompanying notes form an integral part of the financial statements. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 37

CASH FLOW STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2002 (CONTINUED) In RM'000 unless otherwise stated Group Company Note 2002 2001 2002 2001 CASH FLOWS FROM INVESTING ACTIVITIES Dividends received 1,783 2,903 1,783 20,019 Interest received 281 279 3,455 3,053 Property, plant and equipment: Proceeds from disposal 1,004 19,063 160 236 Additions (36,944) (36,479) (6,308) (22,935) Purchase of investment (426) 0 0 0 Net cash (used in) / from investing activities (34,302) (14,234) (910) 373 CASH FLOWS FROM FINANCING ACTIVITIES Net (repayment) / draw down of revolving credit (10,969) 15,606 531 15,255 Net (repayment of) / proceeds from bankers' acceptance (45,769) (18,763) (48,374) 17,385 Long term borrowings drawn down 14,250 20,454 750 11,325 Repayment of long term borrowings (66,079) (60,300) (56,400) (59,300) Repayment of advances to subsidiary companies 0 0 0 (5,500) Net cash used in financing activities (108,567) (43,003) (103,493) (20,835) Net increase in cash and cash equivalents 4,517 23,356 10,834 14,212 Cash and cash equivalents at beginning of the financial year 21,673 (1,683) 14,859 647 Cash and cash equivalents at end of the financial year 24 26,190 21,673 25,693 14,859

NON-CASH TRANSACTIONS (2002 ONLY) The Group acquired property, plant and equipment with an aggregate cost of RM39,474,000 of which cash payments of RM36,944,000 were made during the financial year. The outstanding amount of RM2,530,000 was included in other payables. The Company acquired property, plant and equipment with an aggregate cost of RM8,838,000 of which cash payments of RM6,308,000 were made during the financial year. The outstanding amount of RM2,530,000 was included in other payables.

The accompanying notes form an integral part of the financial statements. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 38 Annual report

NOTES TO THE FINANCIAL STATEMENTS In RM'000 unless otherwise stated 1 GENERAL INFORMATION AND PRINCIPAL ACTIVITIES The Company is a public limited liability company, incorporated and domiciled in Malaysia, and listed on the Main Board of the Kuala Lumpur Stock Exchange. The principal activities of the Company are the manufacturing of sales and trading in billets, steel bars and wire rods. The principal activities of its subsidiary companies and associated companies are described in Notes 16 and 17 to the financial statements. There have been no significant changes in the nature of these activities during the financial year.

2 BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES All significant group accounting policies set out below are consistent with those applied in the previous financial year. (a) BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements are prepared in accordance with the applicable approved accounting standards in Malaysia and comply with the provisions of the Companies Act, 1965. The new applicable approved accounting standards adopted in these financial statements are as follows: (i) Retrospective application The following new MASB Standards have been applied retrospectively: • MASB Standard 19: "Events After Balance Sheet Date" • MASB Standard 20: "Provisions, Contingent Liabilities and Contingent Assets" • MASB Standard 22: "Segmental Reporting" (ii) Prospective application from 1 January 2002 The following new MASB Standards have been applied prospectively: • MASB Standard 21: "Business Combinations" • MASB Standard 23: "Impairment of Assets" • MASB Standard 24: "Financial Instruments: Disclosure and Presentation" For the financial instruments, comparative figures were not disclosed upon first application of MASB Standard 24, as permitted by the standard. (b) ACCOUNTING CONVENTION The financial statements are prepared under the historical cost convention modified by the revaluation of certain land and buildings. (c) BASIS OF CONSOLIDATION The consolidated financial statements include the financial statements of the Company and all its subsidiary companies, made up to the end of the financial year. All inter-company transactions and balances and the resulting unrealised profits are eliminated on consolidation. Unrealised losses are also eliminated unless cost cannot be recovered. The results of all the subsidiary companies are consolidated using the acquisition method of accounting except for the combination with Southern Steel Holdings Sdn. Bhd. Group which were consolidated prior to 1 January 2002 using the merger method of accounting in accordance with the Malaysian Accounting Standard No. 2 - Accounting for Acquisitions and Mergers. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 39

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 2 BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) BASIS OF CONSOLIDATION (CONTINUED) Under the acquisition method of accounting, the results of the subsidiary companies acquired or disposed of during the financial year are included in the consolidated income statement from the date of acquisition or up to the date of disposal. At the date of acquisition, the fair values of the subsidiary companies' net assets are determined and these values are reflected in the Group financial statements. The excess / deficit of the purchase consideration over the fair values of the net assets of the subsidiary companies acquired is reflected in the financial statements as goodwill / reserve on consolidation. Goodwill on consolidation is amortised using the straight line method over 25 years, or such lesser period as the Directors may determine. Where an indication of impairment exists, the carrying amount of the goodwill on consolidation is assessed and written down immediately to its recoverable amount. Under the merger method of accounting, the results of the subsidiaries are presented as if the merger had been effected throughout the current and previous financial periods. On consolidation, the difference between the carrying values of the investment in these subsidiaries over the nominal value of the shares acquired is taken to merger reserve. Minority interest is measured at the minorities' share of the post-acquisition fair values of the identifiable assets and liabilities of the acquirees. Separate disclosure is made of minority interest. (d) SUBSIDIARY COMPANIES A subsidiary company is a company, in which the Group has the power, directly or indirectly to govern the financial and operating policies of the company so as to obtain benefits from its activities. Investments in subsidiary companies are stated at cost. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. (e) ASSOCIATED COMPANIES An associated company is a company, in which the Group exercises significant influence, but not control, over the financial and operating policies. In the Company's financial statements, investments in associated companies are stated at cost. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. The Group equity accounts for its share of the results and reserves of the associated companies from the date that significant influence effectively commences until the date that significant influence effectively ceases or when the carrying amount of the investment in an associated company reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the associated company. Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent of the Group's interest in the associated companies. Unrealised losses on such transactions are also eliminated to the extent of the Group's interest in the associated companies unless cost cannot be recovered. Goodwill / Reserve on acquisition represent the excess / deficit of the purchase consideration over the fair values of the net assets of the associated companies acquired. Goodwill on acquisition is included in the carrying amount of the investment in the associated companies and amortised using the straight line method over 25 years, or such lesser period as the Directors may determine. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 40 Annual report

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 2 BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (f) REVENUE Revenue of the Group and the Company represents the invoiced value of goods net of discounts and returns. Revenue from sales of goods is recognised when the goods are delivered. Other revenue earned by the Group is recognised on the following bases: Interest income -on accrual basis determined by the principal outstanding and rate applicable unless collectibility is in doubt. Dividend income - when the shareholder's right to receive payment is established. (g) OTHER INVESTMENTS Long term investments are stated at cost. Long term investments are only written down when the Directors are of the opinion that there is a decline other than temporary in the value of such investments. Where there has been a decline other than temporary in the value of an investment, such a decline is recognised as an expense in the period in which the decline is identified. Investment in quoted shares (within current assets) is carried at the lower of cost and market value, determined on an aggregate portfolio basis by category of investment. Cost is derived at on the weighted average basis. Market value is calculated by reference to the stock exchange quoted selling prices at the close of business on the balance sheet date. Increases / decreases in the carrying amount of marketable securities are credited / charged to the income statement. (h) RESEARCH AND DEVELOPMENT Research expenditure is recognised as an expense when incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets to the extent that such expenditure is expected to generate future economic benefits. Other development expenditure is recognised as an expense when incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been capitalised are amortised from the commencement of the commercial production of the product to which they relate on the straight line basis over the period of their expected benefit. (i) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment except for freehold land are stated at cost and / or valuation less accumulated depreciation and accumulated impairment losses. The Group revalues its freehold land, leasehold land and buildings every 5 years with additional revaluation in the intervening years if the carrying value of the revalued land and buildings differ materially from the market value. Surplus arising from the revaluation will be dealt with in the revaluation reserves and deficit first set-off against the surplus in revaluation reserves previously credited, any remaining deficit is then charged to the income statement. Where an indication of impairment exists, the carrying amount of the asset is assessed and written down immediately to its recoverable amount. The impairment loss is charged to the income statement unless it reverses a previous revaluation in which case it is charged to the revaluation reserve. Any subsequent increase in recoverable amount is recognised in the income statement unless it reverses an impairment loss on the revalued land and buildings, in which case it is taken to revaluation reserve. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 41

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 2 BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (j) DEPRECIATION Freehold land and capital expenditure in progress are not depreciated. Leasehold land is amortised on the straight line basis over the leasehold period of 60 to 99 years. On other property, plant and equipment, depreciation is calculated to write off the cost or valuation on a straight-line basis over their expected useful lives. The principal annual depreciation rates used are as follows: Buildings 2% - 12% Plant and machinery 5% - 20% Office equipment 5% - 50% Motor vehicles 20% - 25% (k) TRADE RECEIVABLES Trade receivables are carried at anticipated realisable value. Known bad debts are written off and allowance is made for debts which are considered doubtful. (l) INVENTORIES Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis. The cost of work in progress and finished goods comprises direct materials, direct labour, other direct costs and an appropriate proportion of production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. (m) FOREIGN CURRENCY TRANSLATION Transactions in foreign currencies are converted to Ringgit Malaysia at the rates of exchange approximating to those ruling at transaction dates. Foreign currency monetary assets and liabilities other than those covered by forward exchange contracts are translated to Ringgit Malaysia at rates of exchange approximating to those ruling at the balance sheet date. Those transactions covered by forward exchange contracts are translated to Ringgit Malaysia at rates specified in those contracts. For inclusion in the consolidated financial statements, assets and liabilities of foreign operations are translated into Ringgit Malaysia at rates of exchange approximating those prevailing at balance sheet date, while income statements for the financial year are translated at average exchange rates during the financial year. Exchange differences resulting from translating the opening net investment are taken directly to the Exchange Fluctuation Reserve. All other exchange differences are dealt with through the income statement. The principal closing rates used in the translation of the currency amounts are as follows: 31.12.2002 31.12.2001 RM RM 1 US Dollar 3.80 3.80 1 Singapore Dollar 2.15 2.08 1 Deutsche Mark NA 1.72 1 Euro 3.77 3.37 1 Japanese Yen 0.03 0.03 1 Swedish Krona 0.42 0.36 1 Renminbi 0.46 0.46 100 Vietnamese Dong 0.03 0.03 Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 42 Annual report

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 2 BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (n) FINANCIAL INSTRUMENTS (i) Foreign currency forward contracts The Group enters into foreign currency forward contracts with licensed financial institutions. This financial instrument and its fair value are not recognised in the financial statements on inception. The exchange gains and losses arising on contracts entered into as hedges of receivables and payables are recognised in the income statement in the same period as the exchange differences on the underlying hedged items arise. Gains and losses in contracts which are no longer designated as hedged are included in the income statement. (ii) Financial instruments recognised on the balance sheet The particular recognition method adopted for financial instruments recognised on the balance sheet is disclosed in the individual policy statements associated with each item. (iii) Fair value estimation for disclosure purpose For investment in unquoted shares, the fair value is an assessment by the Directors based on the underlying net assets and any special circumstances pertaining to a particular investment. The fair values of fixed interest rate financial liabilities with maturity of more than one year are estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar financial instruments. The fair value of the long term loan to a subsidiary company are estimated by discounting the future contractual cash flows at the current market interest rate available to the subsidiary for similar financial instrument. The carrying amounts of floating interest rate financial liabilities with maturity of more than one year are assumed to approximate their fair values. The face values for financial assets and liabilities with maturity of less than one year are assumed to approximate their fair values. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date. (o) DEFERRED TAXATION Provision is made by the liability method for taxation deferred in respect of all timing differences except where tax effects of such timing differences are expected to be deferred indefinitely. Deferred tax benefits are only recognised in the financial statements where there is reasonable expectation of realisation in the near future. In arriving at the provision for deferred taxation, future income tax benefits arising from reinvestment allowances are also accounted for. (p) RETIREMENT BENEFITS The Group operates both unfunded defined benefit and funded defined contribution schemes. The unfunded defined benefit schemes are subject to periodic actuarial valuations once every 3 years by an independent qualified actuary. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 43

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 2 BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (p) RETIREMENT BENEFITS (CONTINUED) (i) The Company and one of its subsidiary companies provided for retirement benefits using the Projected Unit Credit Method based on an actuarial valuation carried out in December 2000. (ii) Certain subsidiary companies provided for retirement benefits using the Projected Unit Credit Method in unfunded defined benefit schemes pursuant to the Collective Agreement signed with Metal Industry Employee's Union. The last actuarial valuation was carried out in December 2002. (iii) Two other subsidiary companies provided for retirement benefits using the Projected Unit Credit Method in an unfunded defined benefit scheme and a funded defined contribution scheme. The assets of the funded scheme are held separately from those of the subsidiary company in an independently administered fund. The last actuarial valuation carried out for the unfunded defined benefit scheme was in December 2002. Effective 1 April 2002, the retirement benefits schemes of all non-unionised employees of the Group were changed to that of higher EPF contribution depending on years of service. The retirement benefits provision in respect of these non-unionised employees up to 31 March 2002 under the old schemes are carried forward in the financial statements as provision for retirement benefits. However, as from 1 April 2002, the funded defined contribution scheme is not admitting any new non-unionised employees into such scheme. (q) CASH AND CASH EQUIVALENTS Cash consists of cash in hand and bank balances. Cash equivalents comprise short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purpose of the cash flow statement, cash and cash equivalents are presented net of bank overdrafts. (r) PROVISIONS Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. (s) REPORTING CURRENCY The financial statements of the Group and of the Company are expressed in Ringgit Malaysia (RM). Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 44 Annual report

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 3 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group's activities expose it to a variety of financial risks, including foreign currency exchange risk, interest rate risk, credit risk, liquidity risk and cash flow risk. The Group's overall financial risk management objective is to ensure that the Group minimises its exposure to financial downside risks at reasonable costs. The Directors regularly review and assess the financial risk management policies to mitigate potential adverse effects from the unpredictability of financial markets on its financial performance. The Group uses foreign exchange contracts to hedge certain exposures. It does not trade in financial instruments. (a) CURRENCY RISK The Group's exposure to currency risk is mitigated as the financial instruments denominated in foreign currency are mainly in USD, which is pegged against RM. The Group, however, monitors development in the government's policy and market condition to take necessary action should the government's policy change. (b) CREDIT RISK The Group seeks to control credit risk by applying due credit control procedure on a regular basis to review and monitor the financial viability of its customers. Sales of products and services are made to customers with an appropriate credit history, sales are suspended when earlier amounts exceed credit period / limit granted. (c) INTEREST RATE, LIQUIDITY AND CASH FLOW RISK Interest rate exposure arises from the Group's borrowings, and is managed through the use of fixed and floating rate debt with the objectives of minimising interest burden whilst maintaining an acceptable debt maturity profile. The Group's policy is also to maintain flexibility in funding by keeping committed credit lines available.

4 EXCEPTIONAL ITEM (2001 ONLY) The exceptional item for the previous financial year relates to the adjustment to scrap value arising from under-estimation of scrap losses in prior years. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 45

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 5 OPERATING PROFIT Group Company 2002 2001 2002 2001 Operating profit is stated after charging: Amortisation of goodwill 3,851 3,762 0 0 Auditors' remuneration - Current 202 202 68 68 - Underprovision in prior year 0 2 0 0 - Others 250 0 250 0 Directors' remuneration Directors of the company - Fees 272 202 240 170 - Fees payable to corporations in respect of services provided by certain Directors 103 65 100 60 - Other emoluments 842 552 839 552 - Other emoluments payable to corporations in respect of services provided by certain Directors 19 12 17 12 Directors of the subsidiary companies - Fees 29 28 0 0 - Fees payable to corporations in respect of services provided by certain Directors 5 10 0 0 - Other emoluments 447 378 0 0 - Other emoluments payable to corporations in respect of services provided by certain Directors 4 0 0 0 Bad debts written off 148 19 0 0 Inventories - Written off 0 17,503 0 17,503 - Net realisable value written down 763 1,398 292 758 - Allowance for inventories obsolescence 10,690 8,852 10,009 8,787 Provision for retirement benefits - Current year 4,976 3,150 3,634 1,595 Property, plant and equipment - Depreciation 86,900 87,969 55,184 56,603 - Written off 3,446 86 0 18 Quoted investments -Allowance for diminution in value (long term) 0 5,726 0 5,726 -Write down (short term) 298 0 0 0 Allowance for doubtful debts 983 1,598 0 1,447 Rental for land and building 1,141 89 337 356 Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 46 Annual report

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 5 OPERATING PROFIT (CONTINUED) Group Company 2002 2001 2002 2001 Rental for equipment and furniture 497 419 141 135 Net realised foreign exchange loss 382 0 450 0 Net unrealised foreign exchange loss 0 39 0 0 Research and development expenditure 7,861 2,845 7,861 2,845 Revaluation deficit 193 0 0 0 and crediting: Allowance for doubtful debts written back 735 0 658 0 Gross dividends from: Quoted investments in Malaysia 6 0 6 0 Subsidiary companies in Malaysia 0 0 0 18,971 Associated companies - in Malaysia 0 0 1,227 0 - outside Malaysia 0 0 550 2,903 Interest income 556 287 2,793 2,757 Allowance for inventories obsolescence written back 560 717 511 578 Property, plant and equipment - Gain on disposals 100 2,997 59 236 Rental income 74 200 87 214 Net realised foreign exchange gain 0 117 0 490 Net unrealised foreign exchange gain 86 0 0 0 Over provision for retirement benefits written back 1,445 0 0 0 Revaluation surplus 0 0 6 0

6 FINANCE COST Finance cost represents interest expense for the financial year.

7 TAXATION OF THE COMPANY AND SUBSIDIARIES Group Company 2002 2001 2002 2001 Current tax expense Malaysian - current (1,137) (895) 0 (10) - prior financial year 1,611 (3) 0 0 Real property gains tax 0 (638) 0 0 Deferred tax reversal (Note 13) 341 333 0 0 815 (1,203) 0 (10)

There is no taxation charge on the business income of the Company due to the utilisation of capital allowances brought forward and available during the financial year. There is no taxation charge on the dividend income of the Company as major amount of the dividend is exempted from tax. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 47

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 7 TAXATION OF THE COMPANY AND SUBSIDIARIES (CONTINUED) The Group's taxation for the current financial year mainly arises from the taxable income of a subsidiary company. The Group's overprovision of tax charge in respect of the prior financial year is mainly due to the tax credit on dividend income received from a subsidiary company in the previous financial year. The tax savings for which credit is taken by the Group and the Company as a result of the realisation of the unutilised tax losses and capital allowances brought forward are as follows: Group Company 2002 2001 2002 2001 Tax savings from the utilisation of: Tax losses brought forward 3 18 3 18 Capital allowances 33,109 0 30,014 0

The Group and Company has, subject to confirmation by the Inland Revenue Board, the following: Group Company 2002 2001 2002 2001 Unutilised capital allowances 308,267 305,664 222,820 256,862 Unabsorbed tax losses 177,497 171,080 101,040 100,989 Unutilised reinvestment allowances 452,766 431,610 376,341 372,369

8 EARNINGS / (LOSS) PER SHARE The basic and diluted earnings per ordinary share for the financial year have been calculated based on the consolidated net profit for the financial year of RM26,868,000 (2001: Consolidated net loss for the financial year of RM51,896,000) on the total number of ordinary shares in issue during the financial year of 282,353,000 (2001: 282,353,000) shares.

9 DIVIDEND PER SHARE Group and Company 2002 2001 Gross Amount of Gross Amount of dividend dividend, dividend per dividend, per share tax exempt share tax exempt SEN RM SEN RM Proposed final dividend 3 8,470,590 0 0

The above proposed final dividend for the financial year ended 31 December 2002 will be proposed for shareholders' approval at the forthcoming Annual General Meeting. These financial statements do not reflect the final dividend, which will be recognised in the year ending 31 December 2003 when approved by shareholders. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 48 Annual report

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 10 SHARE CAPITAL Group and Company 2002 2001 Authorised: Ordinary shares of RM1.00 each 500,000 500,000 Preference shares of RM1.00 each 2,000 2,000 502,000 502,000 Issued and fully paid: Ordinary shares of RM1.00 each 282,353 282,353

11 RESERVES Group Company 2002 2001 2002 2001 Shares premium 34,843 34,843 34,843 34,843 Revaluation reserve 97,875 87,125 60,584 51,956 Merger reserve 30,000 30,000 33,600 33,600 Capital reserve 3,457 3,457 0 0 Exchange fluctuation reserve 11,415 10,747 0 0 Total non-distributable 177,590 166,172 129,027 120,399 (Accumulated losses) / Retained profit (48,926) (75,794) 10,592 (21,528) 128,664 90,378 139,619 98,871

Subject to confirmation by the Inland Revenue Board, the Company has sufficient tax credit and tax exempt income available under the Income Tax Act, 1967 to frank all its retained profit as at 31 December 2002, if paid out as dividends.

12 LONG TERM LOAN Group Company 2002 2001 2002 2001 Unsecured Conventional Facilities - USD 125 Million Term Loan 475,063 475,063 475,063 475,063 - Others 148,207 200,036 128,579 184,229 Islamic Facility 27,322 27,322 0 0 650,592 702,421 603,642 659,292 Less: Amounts due within 12 month: Conventional Facilities - USD 125 Million Term Loan 157,511 95,013 157,511 95,013 - Others 46,998 58,400 43,311 56,400 Islamic Facility 8,331 7,678 0 0 212,840 161,091 200,822 151,413 437,752 541,330 402,820 507,879 Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 49

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 12 LONG TERM LOAN (CONTINUED) Group Company 2002 2001 2002 2001 Due after one and up to two years 149,518 101,587 129,677 91,256 Due after two and up to five years 255,116 392,237 240,025 369,117 Due after five years 33,118 47,506 33,118 47,506 437,752 541,330 402,820 507,879

The fair value of conventional facilities of the Group and of the Company at 31 December 2002 was estimated at RM649,942,000 and RM603,097,000 respectively. Conventional Facilities The conventional facilities comprise of term loans repayable by monthly, quarterly or half yearly instalments with the exception of the USD10 million term loan which carry bullet repayments due in September 2004 (USD10 Million Term Loan). The term loans are held against negative pledge over all the assets of the Company and carry interest ranging from 3.17% to 8.15% (2001: 3.64% to 8.15%) per annum. The USD125 Million Term Loan facility was originally due and repayable on 12 February 2002, but was restructured on 8 and 11 March 2002, based on two Supplemental Agreements entered into between the Company (as Borrower), the Development Bank of Singapore Ltd, Labuan Branch (as Agent) and the relevant financial institutions. The main revised terms and conditions are as follows: Amount Interest rate RM'000 Amounts due within 12 months 157,511* SIBOR + 1.75% Amounts due after 12 months 317,552 Ranging from SIBOR + 1.75% to 2.5% Total 475,063

SIBOR denotes The Singapore Interbank Offer Rate for USD. * The amounts payable within 12 months represent: i) the amount due within 90 days from the receipt of all approvals from the regulatory authorities in respect of the Company's proposed renounceable rights issue of Irredeemable Convertible Unsecured Loan Stocks as disclosed in Note 28 on the financial statements; and ii) amount payable under para 2G(i)(a) of the Supplemental Agreement dated 8 March 2002 with the relevant financial institutions and Development Bank of Singapore Ltd, Labuan Branch (as Agent of the financial institutions) equivalent to 50% of the excess of actual cash flows from operating activities over the projected cash flows from operating activities as stated in the Supplemental Agreement for the financial year ended 31 December 2002. There is a put option in favour of the financial institutions whereby the financial institutions can request for the repayment of the remaining last 3 instalments amounting to RM118,766,000 on a bullet basis subsequent to end of the 5th year. As a result of the revision to the terms and conditions of the Company's USD125 Million Term Loan facility, the Group and the Company's outstanding loan balance as at 31 December 2002 has been adjusted to reflect the new repayment terms and segregated into the relevant short term and long term portion. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 50 Annual report

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 12 LONG TERM LOAN (CONTINUED) Islamic Facility The Islamic Facility drawn down by certain subsidiary companies was financed under the Islamic principle of Bai Bithaman Ajil. The Islamic Bai Bithaman Ajil Facility provides a facility of up to RM35 million for a period of five years, to be repaid over sixteen equal quarterly instalments commencing from year 2002. The cost of financing under the Bai Bithaman Ajil Facility, is the difference between the Bank's Selling Price and the Bank's Purchase Price, which is equivalent to financing cost of 8.35% (year one), 8.50% (year two) and 8.75% (years three to five) per annum. The Islamic Facility is held against the following: (a) Property Purchase Agreement between the subsidiary companies and the bank; (b) Property Sales Agreement between the subsidiary companies and the bank; and (c) Negative pledge over all the assets of the subsidiary companies. The currency exposure profile of the long term loan is as follows: Group Company 2002 2002 Ringgit Malaysia 137,524 90,574 US Dollar 513,068 513,068 650,592 603,642

13 DEFERRED TAXATION Group 2002 2001 Balance at 1 January 7,290 7,623 Transfer to income statement (Note 7) (341) (333) Balance at 31 December 6,949 7,290

Deferred tax liability arising from the revaluation of land and building in the Group and the Company is not provided for in the financial statements as there is no intention to dispose of these assets in the foreseeable future. Group Company 2002 2001 2002 2001 Deferred tax not provided for in the financial statements: arising from revaluation of land and building which are held for long term use 4,652 4,356 3,001 2,598 Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 51

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 13 DEFERRED TAXATION (CONTINUED) The potential deferred tax assets of the Group and of the Company which have not been taken up in the financial statements are as follows:

Group Company 2002 2001 2002 2001 Excess of capital allowances over depreciation (231,384) (192,597) (228,556) (192,594) Unabsorbed tax losses 174,622 171,080 101,040 100,989 Other timing differences 44,034 22,772 37,626 22,720 Unutilised reinvestment allowances 452,766 431,610 376,341 372,369 440,038 432,865 286,451 303,484 At 28% 123,211 121,202 80,206 84,976

14 PROVISION FOR RETIREMENT BENEFITS AND OTHER PROVISIONS Group Company 2002 2001 2002 2001 Provision for retirement benefits At 1 January 23,524 21,602 11,280 10,088 Charged to income statement 4,976 3,150 3,634 1,595 Overprovision written back (1,445) 0 0 0 Utilised during the financial year (1,105) (1,228) (345) (403) 25,950 23,524 14,569 11,280 Other provisions At 1 January 430 0 0 0 Charged to income statement 223 430 0 0 Utilised during the financial year (5) 0 0 0 648 430 0 0 At 31 December 26,598 23,954 14,569 11,280 Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 52 Annual report

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 15 PROPERTY, PLANT AND EQUIPMENT Cost / Valuation Balance Additions Balance at Revaluation Reclassifi- Revaluation Write offs / at Group 1.1.2002 surplus cations adjustments Disposals 31.12.2002 At Valuation Freehold land 25,310 3,124* 0 699 (893) 28,240 Long term leasehold land 65,540 1,735* (1700) (2,049) 0 63,526 Short term leasehold land 32,687 282* 1700 (2,517) 0 32,152 Buildings 204,304 6,018* (9,296) 44,808 (3,001) 242,833 At Cost Freehold land 699 323 0 (699) 0 323 Long term leasehold land 876 0 0 (876) 0 0 Short term leasehold land 579 190 0 (579) 0 190 Buildings 106,698 6,034 (17,453) (89,100) 0 6,179 Plant and machinery 1,219,077 30,484 42,296 0 (2,549) 1,289,308 Office equipment 25,050 1,595 1,563 0 (185) 28,023 Motor vehicles 15,024 364 34 0 (2,228) 13,194 Capital work in progress 17,025 484 (17,144) 0 (7) 358 1,712,869 50,633 0 (50,313) (8,863) 1,704,326 * Represents revaluation surplus Accumulated Depreciation Charge Balance for the Balance at financial Reclassifi- Revaluation Write offs / at Group 1.1.2002 year cations adjustments Disposals 31.12.2002 At Valuation Freehold land 0 0 0 0 0 0 Long term leasehold land 3,577 1,025 0 (2,778) 0 1,824 Short term leasehold land 2,027 898 (3) (2,626) 0 296 Buildings 26,621 9,807 (1,324) (26,162) (127) 8,815 At Cost Freehold land 0 0 0 0 0 0 Long term leasehold land 37 110 0 (147) 0 0 Short term leasehold land 453 15 3 (470) 0 1 Buildings 18,060 1,744 (1,530) (18,130) 0 144 Plant and machinery 457,147 69,753 2,084 0 (2,041) 526,943 Office equipment 17,427 2,821 752 0 (162) 20,838 Motor vehicles 13,500 727 18 0 (1,759) 12,486 Capital work in progress 0 0 0 0 0 0 538,849 86,900 0 (50,313) (4,089) 571,347 Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 53

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 15 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Cost / Valuation Additions / Balance Revaluation Balance at surplus / Reclassifi- Revaluation Write offs / at Company 1.1.2002 (deficit) cations adjustments Disposals 31.12.2002 At Valuation Freehold land 8,200 3,239* 0 461 0 11,900 Long term leasehold land 36,457 (2,127)* 0 (1,589) 0 32,741 Short term leasehold land 24,537 (44)* 0 (1,488) 0 23,005 Buildings 111,171 7,566* (34) 46,119 0 164,822 At Cost Freehold land 461 323 0 (461) 0 323 Long term leasehold land 876 0 0 (876) 0 0 Short term leasehold land 576 190 0 (576) 0 190 Buildings 104,624 391 (26,738) (77,894) 0 383 Plant and machinery 851,809 6,913 27,106 0 (103) 885,725 Office equipment 14,410 725 0 0 (6) 15,129 Motor vehicles 11,834 296 34 0 (987) 11,177 Capital work in progress 368 0 (368) 0 0 0 1,165,323 17,472 0 (36,304) (1,096) 1,145,395 * Represents revaluation surplus / (deficit) Accumulated Depreciation Charge Balance for the Balance at financial Reclassifi- Revaluation Write offs / at Company 1.1.2002 year cations adjustments Disposals 31.12.2002 At Valuation Freehold land 0 0 0 0 0 0 Long term leasehold land 2,242 703 0 (2,424) 0 521 Short term leasehold land 1,884 619 0 (2,036) 0 467 Buildings 17,139 7,569 (18) (18,528) 0 6,162 At Cost Freehold land 0 0 0 0 0 0 Long term leasehold land 37 4 0 (41) 0 0 Short term leasehold land 24 5 0 (28) 0 1 Buildings 14,775 1,317 (2,837) (13,247) 0 8 Plant and machinery 252,677 43,022 2,837 0 (59) 298,477 Office equipment 10,271 1,380 0 0 (3) 11,648 Motor vehicles 11,044 565 18 0 (933) 10,694 Capital work in progress 0 0 0 0 0 0 310,093 55,184 0 (36,304) (995) 327,978 Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 54 Annual report

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 15 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Group Company Balance Balance Balance Balance at at at at Net Book Value 31.12.2002 31.12.2001 31.12.2002 31.12.2001 At Valuation Freehold land 28,240 25,310 11,900 8,200 Long term leasehold land 61,702 61,963 32,220 34,215 Short term leasehold land 31,856 30,660 22,538 22,653 Buildings 234,018 177,683 158,660 94,032 At Cost Freehold land 323 699 323 461 Long term leasehold land 0 839 0 839 Short term leasehold land 189 126 189 552 Buildings 6,035 88,638 375 89,849 Plant and machinery 762,365 761,930 587,248 599,132 Office equipment 7,185 7,623 3,481 4,139 Motor vehicles 708 1,524 483 790 Capital work in progress 358 17,025 0 368 1,132,979 1,174,020 817,417 855,230

Freehold land, long term and short term leasehold land and buildings of the Group and the Company are shown at Directors' valuation based on a valuation exercise carried out during March and April 2002 by an independent firm of valuers, CH Williams Talhar and Wong on an open market value basis, using the comparison method by the following valuers who are members of Institute of Surveyor's, Malaysia and directors of CH Williams, Talhar & Wong Sdn Bhd: • Lee Eng Kow • Khoo Tiang Huat • Chong Pah Aung • Heng Kiang Hai • Danny Yeo Soon Kee • Ku Fuziah Ku Hamzah • P'ng Soo Theng Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 55

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 15 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Subsequent additions are shown at cost while disposals are at valuation or cost as appropriate. Title deeds of certain leasehold land and a freehold land with net book value of RM13,756,000 (2001: RM10,718,000) are in the process of being registered in the Company's name. Had the revalued properties been stated at their original cost less accumulated depreciation, the net book values would have been as follows: Group Company 2002 2001 2002 2001 Freehold land 16,390 16,340 7,059 6,598 Long term leasehold land 56,535 58,760 34,049 33,944 Short term leasehold land 6,974 5,492 3,879 3,442 Buildings 173,183 120,728 120,319 64,459 253,082 201,320 165,306 108,443

16 SUBSIDIARY COMPANIES Company 2002 2001 Shares in unquoted corporations, at cost 353,034 353,034 Loan to a subsidiary company 40,000 40,000 393,034 393,034

The loan to a subsidiary company, Southern Pipe Industry (Malaysia) Sdn. Bhd. is unsecured and carries interest rates ranging from 5.0% to 6.0% (2001: 5.0% to 5.5%) per annum. The Company has indicated that it will not recall the loan within the next 12 months and accordingly, the loan is classified as a non-current asset. The carrying value of the loan as at the balance sheet date approximated its fair value. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 56 Annual report

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 16 SUBSIDIARY COMPANIES (CONTINUED) The following are the subsidiary companies of the Company, all of which are incorporated in Malaysia: GROUP INTEREST 2002 2001 DIRECT SUBSIDIARY COMPANIES PRINCIPAL ACTIVITIES (%) (%) * Southern Steel Holdings Sdn. Bhd. Investment holding 100 100 * Southern Steel Trading Sdn. Bhd. Trading in iron and steel products and providing transportation services 100 100 * Southern Steel Properties Sdn. Bhd. Rental of properties 100 100 * Danstil Sdn. Bhd. Rental of properties 100 100 Southern Coated Wire Sdn. Bhd. Inactive 100 100 Southern Galvanised Wire Sdn. Bhd. Inactive 100 100 * Southern Precision Casting Sdn. Bhd. Inactive 100 100 * Dowtech Sdn. Bhd. Inactive 100 100 * Gading Julang Sdn. Bhd. Inactive 100 100 Gading Tunas Sdn. Bhd. Inactive 100 100 Southern PC Steel Holdings Sdn. Bhd. Inactive 100 100 * Southern Steel Management Sdn. Bhd. Inactive 100 100 * Asia Seamless Pipes Sdn. Bhd. Inactive 100 100 * Southern Carrier Sdn. Bhd. Inactive 100 100 * Brisk Steel Products Sdn. Bhd. Manufacture and marketing of steel wire mesh and concrete wires 100 100 Southern Wire Industries (Malaysia) Manufacture and sale of steel wire, Sdn. Bhd. wire ropes, tyre bead wire and welding wire, galvanised wire and strand 100 100 Southern Pipe Industry (Malaysia) Manufacture and sale of steel pipes Sdn. Bhd. 83.7 83.7

SUBSIDIARIES OF SOUTHERN STEEL HOLDINGS SDN. BHD. * Southern Steel Bar Sdn. Bhd. Inactive 100 100 * Southern Steel Industries Sdn. Bhd. Inactive 100 100

SUBSIDIARIES OF SOUTHERN WIRE INDUSTRIES (MALAYSIA) SDN. BHD. Southern PC Steel Sdn. Bhd. Manufacture and sale of pre-stressed concrete strands and wires 100 100 Cempaka Raya Sdn. Bhd. Supply of contract labour 100 100 * Trend Staples Industry Sdn. Bhd. Manufacture of staples and related products 70 70

SUBSIDIARY OF BRISK STEEL PRODUCTS SDN. BHD. * Southern Mesh Sdn. Bhd. Manufacture and marketing of steel wire mesh and concrete wires 100 100

* Subsidiary companies not audited by PricewaterhouseCoopers, Malaysia Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 57

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 17 ASSOCIATED COMPANIES Group Company 2002 2001 2002 2001 Shares at cost - unquoted 57,031 57,031 57,031 57,031 Less: Accumulated impairment losses 0 0 (10,135) (10,135) 57,031 57,031 46,896 46,896 Share of post acquisition reserves less losses, goodwill amortisation and net translation differences 6,097 6,718 0 0 63,128 63,749 46,896 46,896 Represented by: Share of net assets 57,433 57,695 Goodwill on acquisition - net of amortisation 5,695 6,054 63,128 63,749 Associated companies are as follows: GROUP INTEREST PRINCIPAL COUNTRY OF 2002 2001 ASSOCIATED COMPANIES ACTIVITIES INCORPORATION (%) (%) Southern Oriental Sdn. Bhd. Investment holding Malaysia 50.0 50.0 Steel Industries (Sabah) Manufacture and Sdn. Bhd. sale of steel products Malaysia 27.5 27.5 NatSteel Trade International Trading in steel and Pte. Ltd. steel related products Singapore 40.0 40.0 Southern NatSteel (Xiamen) Manufacture and sale Limited of ferrous and metallic products and the related by-products China 40.7 40.7 NatSteelVina Company Ltd. Manufacture and trading of iron and steel products Vietnam 22.6 22.6 Wujin Qianyang Steel Limited Ceased operation - (Associated company of under liquidation Southern Oriental Sdn. Bhd.) China 25.0 25.0 Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 58 Annual report

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 18 OTHER INVESTMENTS LONG TERM Group Company 2002 2001 2002 2001 Shares in Malaysia Quoted At cost 6,434 6,434 6,434 6,434 Less: Allowance for diminution in value (5,726) (5,726) (5,726) (5,726) 708 708 708 708 Unquoted At cost 0 1,050 0 0 Less: Allowance for diminution in value 0 (1,050) 0 0 0 0 0 0

Total 708 708 708 708 Market value of quoted investments 989 777 989 777

The market value at the balance sheet date of these investments approximated their fair value.

SHORT TERM Group 2002 2001 Investment in quoted shares of corporations outside Malaysia 128 0

Market value of quoted investments 128 0

The market value at the balance sheet date of these quoted investments approximated their fair value.

19 GOODWILL ON CONSOLIDATION Group 2002 2001 At cost At 1 January / 31 December 100,018 100,018 Accumulated amortisation At 1 January (36,277) (32,515) Amortisation of goodwill (3,851) (3,762) At 31 December (40,128) (36,277) 59,890 63,741 Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 59

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 20 INVENTORIES Group Company 2002 2001 2002 2001 At cost: Raw materials 89,973 108,327 57,419 74,907 Work in progress 15,312 10,084 0 0 Finished goods 67,902 55,810 35,716 40,731 General consumables and other stores 47,956 76,561 34,518 60,673 221,143 250,782 127,653 176,311 At net realisable value Raw materials 84,384 55,173 84,358 55,123 Work in progress 0 39 0 0 Finished goods 1,903 6,573 0 639 General consumables and other stores 23,082 152 22,912 0 109,369 61,937 107,270 55,762 330,512 312,719 234,923 232,073

Included in raw materials are goods-in-transit for the Group and the Company amounting to RM24,186,000 (2001: RM23,263,000) and RM22,415,000 (2001: RM22,845,000) respectively. The Group and Company reversed RM560,000 (2001: RM717,000) and RM511,000 (2001: RM578,000) respectively in respect of the allowance for inventory obsolescence made in prior years as the Group and Company were able to use such inventories in the course of production in the current financial year.

21 TRADE AND OTHER RECEIVABLES Group Company 2002 2001 2002 2001 Trade receivables 113,196 128,391 21,918 36,683 Allowance for doubtful debts (14,168) (14,108) (5,505) (6,251) 99,028 114,283 16,413 30,432 Other receivables 11,902 8,724 3,090 3,021 Allowance for doubtful debts (62) (62) (62) (62) 11,840 8,662 3,028 2,959 Amounts due from subsidiary companies 0 0 8,431 7,285 Amounts due from associated companies 10,978 6,425 10,978 6,425 Amounts due from related parties 12,447 9,642 7,418 2,984 Prepayments 2,757 2,624 1,317 588 137,050 141,636 47,585 50,673 Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 60 Annual report

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 21 TRADE AND OTHER RECEIVABLES (CONTINUED) The currency exposure profile of the trade and other receivables (excluding prepayments) is as follows: Group Company 2002 2002 Ringgit Malaysia 119,306 43,750 US Dollar 10,148 2,518 Singapore Dollar 4,839 0 134,293 46,268

Credit terms of trade and other receivables of the Group and the Company mainly range from 14 days to 90 days and 14 days to 60 days respectively. Concentration of credit risk with respect to trade receivables is limited due to the Group and Company's large number of customers, who are locally and internationally dispersed, cover a broad spectrum of manufacturing and distribution and have a variety of end markets in which they sell. The Group and Company's historical experience in the collection of accounts receivables fall within the recorded allowances. The Directors of the Group believes that there is no credit risk beyond amounts that have been provided for. Amounts due from subsidiary companies are primarily interest free advances with no fixed repayment terms except for certain amounts due from subsidiary companies where interest was charged at rates ranging from 4.76% to 8.00% (2001: 5.38% to 8.00%) per annum. Credit terms for amounts due from associated companies and related parties of the Company range from 14 days to 60 days. Amounts due from associated companies relate mainly to sales of wire rods and billets and personnel secondment charges to the associated companies. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 61

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 22 TRADE AND OTHER PAYABLES Group Company 2002 2001 2002 2001 Trade payables 78,751 66,795 54,753 50,565 Other payables 51,831 59,630 39,448 48,252 130,582 126,425 94,201 98,817 Amounts due to subsidiary companies 0 0 102,175 103,412 Amounts due to associated companies 55,192 14,740 55,192 14,740 Amounts due to related parties 2,519 4,873 2,387 4,737 188,293 146,038 253,955 221,706

The currency exposure profile of the trade and other payables is as follows: Group Company 2002 2002 Ringgit Malaysia 128,861 195,251 US Dollar 57,140 56,615 Euro 1,915 1,766 Singapore Dollar 322 282 Others 55 41 188,293 253,955

Credit terms of trade and other payables of the Group and the Company mainly range from 5 days to 90 days and 14 days to 30 days respectively. Amounts due to subsidiary companies are unsecured, interest free and have no fixed terms of repayment. Credit terms for amounts due to associated companies and related parties of the Group and the Company range from 14 days to 60 days. Amounts due to associated companies are mainly trade in nature and relate to the purchases of raw materials. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 62 Annual report

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 23 SHORT TERM BORROWINGS Group Company 2002 2001 2002 2001 Unsecured Bank overdrafts 8,399 2,007 3,164 496 Bankers' acceptance 310,683 356,452 170,577 218,951 Revolving credit 152,009 162,978 104,009 103,478 Term loans due within 12 months (refer note 12) 212,840 161,091 200,822 151,413 683,931 682,528 478,572 474,338

The currency exposure profile of the short term borowings is as follows: Group Company 2002 2002 Ringgit Malaysia 450,410 245,051 US Dollar 233,521 233,521 683,931 478,572

The range of interest rates of the short term borrowings effective as at balance sheet date is as follows: Group Company 2002 2002 % % Range of interest rates Bankers' acceptance and revolving credit 2.65 - 6.50 2.65 - 4.40 Bank overdraft and term loans due within 12 months (refer note 12) 3.17 - 8.50 3.17 - 8.15

Short term borrowings are held against negative pledge over all the assets of the Company and certain of its subsidiary companies, excluding certain property, plant and equipment financed under the Islamic Facility (as disclosed in Note 12). Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 63

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 24 CASH AND CASH EQUIVALENTS Cash and cash equivalents included in the cash flow statement comprise the following: Group Company 2002 2001 2002 2001 Deposits with licensed banks 21,000 17,150 21,000 14,000 Bank and cash balances 13,589 6,530 7,857 1,355 Deposits, bank and cash balances 34,589 23,680 28,857 15,355 Bank overdrafts (Note 23) (8,399) (2,007) (3,164) (496) 26,190 21,673 25,693 14,859

The interest rate of the deposits with licensed banks effective as at balance sheet date is as follows: Group and Company 2002 % Deposits with licensed banks 2.55 Deposits with licensed banks of the Group and the Company have an average maturity of 2 days. Bank balances are deposits held at call with banks.

25 CAPITAL COMMITMENTS Capital expenditure not provided for in the financial statements is as follows: Group Company 2002 2001 2002 2001 Capital expenditure for property, plant and equipment: - approved and contracted for 1,646 568 1,476 398 - approved but not contracted for 534 24,833 365 1,455 2,180 25,401 1,841 1,853

26 SIGNIFICANT RELATED PARTY TRANSACTIONS Significant transactions with related parties are as follows:

Group Company Relationship 2002 2001 2002 2001 Sale of goods to: Hong Leong Company Enterprises controlled by 47,234 42,126 34,708 28,131 (Malaysia) Berhad the same enterprise Group which exercises significant influence over the Company NatSteel Ltd. Group Enterprises controlled by 15,260 9,838 11,534 414 the same enterprise which exercises significant influence over the Company Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 64 Annual report

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 26 SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED)

Group Company Relationship 2002 2001 2002 2001 Sale of goods to: Hong Bee Group Enterprises that are 15,228 49,015 12,834 42,971 indirectly controlled by a past Director Chin Well Holdings Enterprises that has a 68,977 80,339 68,977 80,339 Berhad Group Director in common with the Company Associated companies: NatSteel Trade Enterprise in which the 24,748 7,414 24,748 7,414 International Pte. Ltd. Company has significant influence Steel Industries Enterprise in which the 48,082 38,309 48,082 38,309 (Sabah) Sdn. Bhd. Company has significant influence Services rendered to: Associated company: NatSteel Trade Enterprise in which the 5,360 2,990 5,360 2,990 International Pte. Ltd. Company has significant influence Purchase of goods from: NatSteel Ltd. Group Enterprises controlled by 17,034 13,806 11,151 13,806 the same enterprise which exercises significant influence over the Company Southern Corporation Enterprise in which 4,853 5,784 4,585 5,504 (Nibong Tebal) substantial interest is Sdn. Bhd. owned indirectly by a Director, who is also a substantial shareholder of the Company Associated company: NatSteel Trade Enterprise in which the 389,114 303,212 389,114 303,212 International Pte. Ltd. Company has significant influence Services rendered from: Hong Leong Company Enterprises controlled by 920 2,074 150 550 (Malaysia) Berhad the same enterprise Group which exercises significant influence over the Company Su Hock Company Enterprise in which 719 936 719 936 Sdn. Bhd. substantial interest is owned indirectly by a Director, who is also a substantial shareholder of the Company Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 65

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 26 SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED)

Group Company Relationship 2002 2001 2002 2001 Dividend income from: Associated companies: NatSteel Vina Enterprise in which 0 0 1,227 2,903 Company Ltd. the Company has significant influence Steel Industries Enterprise in which 0 0 550 0 (Sabah) Sdn. Bhd. the Company has significant influence These related party transactions have been entered into in the normal course of business and have been established on a negotiated basis.

27 EMPLOYEE INFORMATION

Group Company 2002 2001 2002 2001 Staff costs 89,488 84,908 47,050 43,462 Remuneration of executive directors 1,312 942 856 564

Number of employees of the Group and the Company at end of the financial year was 2,898 (2001: 2,840) and 1,202 (2001: 1,210) respectively.

28 SUBSEQUENT EVENTS On 5 February 2003, the Company announced that the shareholders of the Company had passed the ordinary resolution pertaining to the proposed renounceable rights issue of up to RM141,176,500 nominal amount of 5.5% 5-year irredeemable convertible unsecured loan stocks ("ICULS") at 100% of the nominal amount on the basis of RM1.00 nominal amount of ICULS for every 2 existing ordinary shares of RM1.00 each held in the Company (the "Proposed Rights Issue of ICULS") and the special resolution pertaining to the proposed amendments to the Articles of Association of the Company at the Company's Extraordinary General Meeting ("EGM") held on 5 February 2003. On 10 February 2003, the Company announced that the Board of Directors of the Company had on 7 February 2003 resolved to fix the conversion price of the ICULS at RM1.03 for every 1 ordinary share of RM1.00 each in the Company ("Conversion Price"), which represents a discount of approximately 9.6% from the weighted average market price of SSB shares for the five (5) market days up to 7 February 2003 of RM1.14. The Conversion Price shall be satisfied solely by the tender of RM1.03 nominal amount of ICULS by the ICULS holders for cancellation by the Company. The Proposed Rights Issue of ICULS remains conditional upon the approval-in-principle of the KLSE for: (a) the admission to the Official List and the listing of and quotation for up to RM141,176,500 nominal amount of ICULS on the KLSE; and (b) the listing of and quotation for up to 137,064,563 new SSB Shares to be issued pursuant to the conversion of the ICULS on the Main Board of the KLSE. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 66 Annual report

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) In RM'000 unless otherwise stated 29 SEGMENTAL REPORTING (a) Primary reporting format - business segments No business segmental reporting has been prepared as the Group's activities involve only one business segment, i.e the manufacturing of steel products. (b) Secondary reporting format - geographical segments The Group's steel business operates in geographical areas as shown in the sales analysis below. Revenue Total Assets Capital Expenditure 2002 2001 2002 2001 2002 2001 ASEAN 1,384,412 1,105,111 1,695,020 1,715,796 39,474 36,479 Others 75,910 268,760 0 0 0 0 1,460,322 1,373,871 1,695,020 1,715,796 39,474 36,479

Associates 63,128 63,749 Unallocated assets 4,659 2,617 1,762,807 1,782,162

In determining the geographical segments of the Group, revenue is based on the country in which the customer is located. Total assets and capital expenditure are determined based on where the assets are located. Unallocated assets represent other investments and tax recoverable of the Group as at balance sheet date.

30 CONTINGENT ASSET As at 31 December 2002, the Group and the Company has an outstanding insurance claim for repair costs arising from the breakdown of one of the transformers of the steel making plants and the loss of operating profit in connection thereto. The financial impact of this claim is still presently not determinable as it is subject to due process of examination by the loss adjuster.

31 FAIR VALUE The carrying amounts of financial assets and liabilities of the Group and Company at 31 December 2002 approximated their fair values except those set out in the respective notes to the financial statements. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 67

PROPERTIES OWNED BY SOUTHERN STEEL AND ITS SUBSIDIARIES Land and Building

Net Book Date of Value As At Approximate Approximate Revaluation / 31-12-02 Location Description Tenure Area Age (Years) Acquisition (RM'000)

State of Penang

1 2435 Lorong Perusahaan 12 Factories Leasehold 50.9 acres 12 - 20 15-4-2002 71,664 Prai Industrial Estate expiring on 13600 Prai 31-01-2039 2 No PT 3171 Mukim 1 Factories Leasehold 4.77716 acres 5 - 7 15-4-2002 ) Seberang Perai Tengah expiring on ) 21-03-2050 ) ) 3 No PT 3178 Mukim 1 Factories Leasehold 2.60451 acres 5 15-4-2002 ) Seberang Perai Tengah expiring on ) 09-04-2050 ) ) 4 2595 Lorong Perusahaan 12 Factories Leasehold 2.60451 acres 5 15-4-2002 ) Prai Industrial Estate expiring on ) 13600 Prai 09-04-2050 ) ) 5 2613 Lorong Perusahaan 12 Factories Leasehold 5.09674 acres 5 15-4-2002 ) Prai Industrial Estate expiring on ) 13600 Prai 21-03-2050 ) ) 100,761 6 No PT 3831 Mukim 1 Factory Leasehold 1.31359 acres 7 15-4-2002 ) Seberang Perai Tengah expiring on ) 21-10-2054 ) ) 7 No PT 3980 Mukim 1 Drains Leasehold 2.12715 acres - 15-4-2002 ) Seberang Perai Tengah expiring on ) 25-01-2059 ) ) 8 Plot 596 Mukim 1 (1) Vacant Land Leasehold 0.29341 acres - 15-4-2002 ) Seberang Perai Tengah 60 years ) 9 2723 Lorong Perusahaan 12 Land Leasehold 4.70227 acres 12 15-4-2002 10,427 Prai Industrial Estate Warehouse expring on 13600 Prai Office 24-06-2046 10 11 Jalan Nagasari Double-storey Freehold 104 sq m 12 15-4-2002 ) Taman Nagasari terrace house ) 13600 Prai ) ) 11 11A Jalan Nagasari Double-storey Freehold 104 sq m 12 15-4-2002 ) Taman Nagasari terrace house ) 13600 Prai ) ) 12 15 Jalan Nagasari Double-storey Freehold 104 sq m 12 15-4-2002 ) Taman Nagasari terrace house ) 13600 Prai ) 592 ) 13 17 Jalan Nagasari Double-storey Freehold 104 sq m 12 15-4-2002 ) Taman Nagasari terrace house ) 13600 Prai ) ) 14 19 Jalan Nagasari Double-storey Freehold 140 sq m 12 15-4-2002 ) Taman Nagasari terrace house ) 13600 Prai ) 15 No PT 1538 Mukim 1 Scrap yard Leasehold 6.82957 acres - 15-4-2002 3,665 Seberang Perai Tengah expiring on 07-08-2045 16 2482 Lorong Perusahaan 12 Factory Leasehold 2.96008 acres 14.5 15-4-2002 4,961 Prai Industrial Estate Buildings expiring on 13600 Prai 23-01-2045 17 No PT 1539 Mukim 1 Scrap yard Leasehold 5.59899 acres - 15-4-2002 ) Seberang Perai Tengah expiring on ) 07-08-2045 ) ) 4,073 18 No PT 1550 Mukim 1 Scrap yard Leasehold 1.99110 acres - 15-4-2002 ) Seberang Perai Tengah expiring on ) 21-05-2046 ) Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 68 Annual report

PROPERTIES OWNED BY SOUTHERN STEEL AND ITS SUBSIDIARIES (CONTINUED)

Net Book Date of Value As At Approximate Approximate Revaluation / 31-12-02 Location Description Tenure Area Age (Years) Acquisition (RM'000)

State of Penang

19 2590 Lorong Perusahaan 12 Factory Leasehold 7.83140 acres 12 15-4-2002 10,856 Prai Industrial Estate Vacant land expiring on 13600 Prai 07-11-2049 & 06-06-2050 20 2703 Lorong Perusahaan 12 Factory Leasehold 4.74672 acres 11 15-4-2002 2,736 Prai Industrial Estate Vacant land expiring on 13600 Prai 17-12-2045 & 07-11-2045 21 No PT 3983 Mukim 1 Existing road Leasehold 4.34682 acres - 15-4-2002 1,975 Seberang Perai Tengah expiring on 01-03-2059 22 No PT 3982 Mukim 1 Weighbridge Leasehold 1.10710 acres 5 15-4-2002 1,027 Seberang Perai Tengah Office building expiring on 13-01-2059 23 Plot 597 Mukim 1 (1) Vacant Land Leasehold 2.93022 acres - 15-4-2002 1,875 Seberang Perai Tengah 60 years 24 Lot 867 Section 10 (2) Vacant Land Freehold 63 sq m - 15-4-2002 ) Georgetown ) ) 25 Lot 868 Section 10 (2) Vacant Land Freehold 66 sq m - 15-4-2002 ) Georgetown ) ) 500 26 Lot 869, Section 10 (3) Vacant Land Freehold 52 sq m - 15-4-2002 ) Georgetown ) ) 27 Lot 870, Section 10 (3) Vacant Land Freehold 37 sq m - 15-4-2002 ) Georgetown ) 28 2489 Lorong Perusahaan 12 Factories Leasehold 1.03294 acres 13 15-4-2002 1,787 Prai Industrial Estate expiring on 13600 Prai 13-5-2043 29 No PT 3057 Mukim 1 Factory Leasehold 2.52981 acres - 15-4-2002 1,614 Seberang Perai Tengah expiring on 21-03-2050 30 2427 Tingkat Perusahaan 6 Billet yard Leasehold 5.60422 acres 1 15-4-2002 4,864 Prai Industrial Estate expiring on 13600 Prai 03-10-2042 31 3081 Jalan Besar Factory Freehold 304,210 sq ft 7 - 39 15-4-2002 11,192 Nibong Tebal 32 4457 Mukim 15, Factory Freehold 413,427 sq ft 8 - 34 15-4-2002 23,969 Jalan Chain Ferry Godown 12100 Butterworth 33 Lot No 2225, Section 4 Open yard Freehold 40,382 sq ft - 15-4-2002 750 12100 Butterworth

State of Selangor Darul Ehsan

34 Lot 4808 Jalan Utas 15/7 Factories Leasehold 634,950 sq ft 5.5 - 28 15-4-2002 50,896 Shah Alam Industrial Estate expiring on 328,800 sq ft 40000 Shah Alam 11-02-2069 & 02-12-2072 35 Rawang Integrated Factory Freehold 497,838 sq ft 6 15-4-2002 16,054 Industrial Park 36 5 1/2 Mile, Jalan Kapar Factories Freehold 8.0069 acres 7 - 22 15-4-2002 19,431 42100 Klang, Selangor Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 69

PROPERTIES OWNED BY SOUTHERN STEEL AND ITS SUBSIDIARIES (CONTINUED)

Net Book Date of Value As At Approximate Approximate Revaluation / 31-12-02 Location Description Tenure Area Age (Years) Acquisition (RM'000)

State of Perak Darul Ridzuan

37 Plot No 2 Land Leasehold 43,240 sq m 21 15-4-2002 14,630 Taman Meru Industrial Estate Factory expiring on Jelapang, 30020 Ipoh 06-09-2043 38 No lot 196802 Vacant land Leasehold 6,669 sq m - 15-4-2002 659 Mukim Hulu Kinta expiring on 21-06-2052 39 24 Laluan Taman Jati 10 Single storey Leasehold 1,240 sq ft 7 15-4-2002 52 Taman Meru Jaya terrace house expiring on 30020 Ipoh 23-05-2089 40 1297 Jalan Jelapang Single storey Leasehold 1,860 sq ft 7 15-4-2002 56 Taman Meru Jaya terrace house expiring on 30020 Ipoh 05-11-2088 41 58 Laluan Jati 5 Single storey Leasehold 960 sq ft 13 15-4-2002 45 Taman Sri Meru terrace house expiring on 30020 Ipoh 12-10-2086

State of Negeri Sembilan

42 Lot 2186 Vacant Land Freehold 0.187 acres - 15-4-2002 150 Mukim of Pasir Panjang Port Dickson 43 Lot 2184 Vacant Land Freehold 0.154 acres - 15-4-2002 120 Mukim of Pasir Panjang Port Dickson

State of Johor

44 No PTD 64673 Single-storey Leasehold 143.0707 sq m 9.5 15-4-2002 99 Mukim Plentong terrace house expiring on Johor Bahru 06-05-2082

Note (1) The expiry date for this leasehold property is not disclosed as a separate issue document of title has not been issued. (2) Subdivided from Lot 649, Section 10, Georgetown (3) Subdivided from Lot 650, Section 10, Georgetown Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 70 Annual report

ANALYSIS OF SHAREHOLDINGS AS AT 30 APRIL 2003 Authorised Capital : 500,000,000 Ordinary Shares 2,000,000 Preference Shares Issued and fully Paid : 282,353,000 Ordinary Shares of RM1.00 each No of Shareholders : 4,139 Voting Right : 1 Vote Per Ordinary Share

DISTRIBUTION SCHEDULE OF SHAREHOLDERS AS AT 30 APRIL 2003 No ofHolders Holdings Total Holdings % 6 Less than 1,000 1,461 0.0005 3,834 1,000 - 10,000 7,883,022 2.7919 224 10,001 - 100,000 6,584,000 2.3318 72 100,001 - less than 5% of issued shares 54,623,317 19.3458 3 5% and above of issued shares 213,261,200 75.5300 4,139 282,353,000 100.0000

DIRECTORS' INTERESTS AS AT 30 APRIL 2003 Subsequent to the financial year end, there is no change as at 30 April 2003 to the Directors' interests in the ordinary shares of the Company and / or its related corporations, appearing in the Directors' Report on page 26 as recorded in the Register of Directors' Shareholdings kept by the Company under Section 135 of the Companies Act, 1965. Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 71

THIRTY LARGEST SHAREHOLDERS According to the Register of Depositors, the 30 largest shareholders of the Company as at 30 April 2003 are as follows: Names of Shareholder No of Shares % 1 Assets Nominees (Tempatan) Sdn Bhd 115,061,324 40.7509 Hume Industries (Malaysia) Berhad 2 NatSteel Limited 76,329,000 27.0332 3 Southern Amalgamated Co Sdn Bhd 21,870,876 7.7459 4 Southern Properties Sdn Bhd 8,925,399 3.1611 5 Mayban Nominees (Tempatan) Sdn Bhd 6,000,000 2.1250 Pledged securities account for Hwang Sing Lue (007219006991) 6 Hong Bee Hardware Company Sdn Bhd 5,244,309 1.8574 7 UOBM Nominees (Tempatan) Sdn Bhd 5,075,000 1.7974 Pledged securities account for Southern Properties Sdn Bhd (PGB) 8 Ladies' Own Sdn Bhd 2,971,000 1.0522 9 Amanah Raya Nominees (Tempatan) Sdn Bhd 2,400,000 0.8500 Skim Amanah Saham Bumiputera 10 Teik Hong Realty Sdn Berhad 1,636,000 0.5794 11 Lee Guat Beow 1,427,609 0.5056 12 HSBC Nominees (Tempatan) Sdn Bhd 1,252,000 0.4434 HSBC (Malaysia) Trustee Berhad for Amanah Saham Sarawak 13 Seri Pinang Sdn Bhd 900,000 0.3187 14 Southern Investment Bank Berhad 851,000 0.3014 Employee's Provident Fund 15 Liao York 824,000 0.2918 16 Choong Chew Kheng 686,000 0.2430 17 Choong Cheow Sai 674,000 0.2387 18 Insotech Sdn Bhd 655,000 0.2320 19 Pacific & Orient Insurance Co Berhad 649,000 0.2298 20 Bumiputra-Commerce Trustee Berhad 645,000 0.2284 Amanah Saham Darul Iman 21 Ch'ng Cheow Lyn 640,000 0.2267 22 HLG Nominee (Asing) Sdn Bhd 622,000 0.2203 Dao Heng Bank Ltd for Teo Eng Kim (A / C 005) 23 Goh Yu Tian 541,000 0.1916 24 BBMB Securities Nominees (Tempatan) Sdn Bhd 514,000 0.1820 Petroliam Nasional Berhad 25 Lembaga Tabung Haji 488,000 0.1728 26 Malaysian Assurance Alliance Berhad 450,000 0.1594 As beneficial owner (Growth Fund) 27 Citicorp Nominees (Asing) Sdn Bhd 407,000 0.1441 American International Assurance Company Limited (P Core) 28 Hwang Sing Lue 402,000 0.1424 29 Lee Wei Tat 400,000 0.1417 30 Yeoh Mei Mei 400,000 0.1417 258,940,517 91.7081 Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 72 Annual report

SUBSTANTIAL SHAREHOLDERS AS AT 30 APRIL 2003

According to the Register of Substantial Shareholders, the substantial shareholders of the Company as at 30 April 2003 are as follows:

No of shares held Name of shareholders Direct % Indirect %

Hume Industries (Malaysia) Berhad 115,061,324 40.75 - - Hong Leong Company (Malaysia) Berhad - - 115,061,324 40.75 Y Bhg Tan Sri Quek Leng Chan - - 115,061,324 40.75 HL Holdings Sdn Bhd - - 115,061,324 40.75 Hong Realty (Private) Limited - - 115,061,324 40.75 Hong Leong Investment Holdings Pte Ltd - - 115,061,324 40.75 Kwek Holdings Pte Ltd - - 115,061,324 40.75 Kwek Leng Beng - - 115,061,324 40.75 NatSteel Limited 76,329,000 27.03 - - Sanion Enterprises Limited - - 76,329,000 27.03 Oei Hong Leong - - 76,329,000 27.03 98 Holdings Pte Ltd - - 76,329,000 27.03 Excel Partners Pte Ltd - - 76,329,000 27.03 Excelfin Pte Ltd - - 76,329,000 27.03 Reef Investments Pte Ltd - - 76,329,000 27.03 Reef Holdings Pte Ltd - - 76,329,000 27.03 Ong Beng Seng - - 76,329,000 27.03 David Ban Song Long - - 76,329,000 27.03 Y. S. Fu Holdings (2002) Pte Ltd - - 76,329,000 27.03 David Fu Kuo Chen - - 76,329,000 27.03 Temasek Holdings (Pte) Ltd - - 77,506,000 27.45 Minister For Finance (Inc) - - 77,506,000 27.45 The Development Bank of Singapore Ltd - - 77,506,000 27.45 MND Holdings (Pte) Ltd - - 77,506,000 27.45 Southern Amalgamated Co Sdn Bhd 21,870,876 7.75 - - Su Hock Company Sdn Bhd - - 21,870,876 7.75 Y Bhg Dato' Seri Tan Hoay Eam - - 21,870,876 7.75 Dr Tan Tat Wai 10,000 0.00 21,870,876 7.75

Deemed interest through Hume Industries (Malaysia) Berhad Deemed interest through NatSteel Limited Deemed interest through NatSteel Limited and DBS Nominees Pte Ltd Deemed interest through NatSteel Limited, DBS Nominees Pte Ltd and Hwang-DBS Asset Management Pte Ltd Deemed interest through Southern Amalgamated Co Sdn Bhd Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 73

NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the Forty-First Annual General Meeting of Southern Steel Berhad (the "Company") will be held at the Topaz Room, Southern Steel Berhad, Level 3, 2723 Lorong Perusahaan 12, Prai Industrial Estate, 13600 Prai, Penang on Wednesday, 18 June 2003 at 10.00 am in order: 1 To receive and consider the audited financial statements for the year ended 31 December RESOLUTION 1 2002 and the Directors' and Auditors' Reports thereon; 2 To declare a final dividend of 3% tax exempt for the year ended 31 December 2002; RESOLUTION 2 3 To re-elect the following retiring Director: (a) Dr Tan Tat Wai; RESOLUTION 3 (b) Mr Yap Peng Leong; RESOLUTION 4 4 To consider and, if thought fit, pass the following resolution: RESOLUTION 5 "THAT pursuant to Section 129(6) of the Companies Act, 1965, YA Bhg Tun Dato' Seri Dr Lim Chong Eu who has attained the age of 70 be re-appointed as a Director of the Company to hold office as a Director until the conclusion of the next annual general meeting of the Company"; 5 To re-appoint Messrs PricewaterhouseCoopers as Auditors of the Company and RESOLUTION 6 authorise the Directors to fix their remuneration; 6 To approve the payment of Directors' fees of RM340,000/- to be divided amongst the RESOLUTION 7 Directors in such manner as the Directors may determine. SPECIAL BUSINESS To consider and, if thought fit, pass the following resolutions: 7 Ordinary Resolutions: 7.1 Authority To Issue Shares "THAT pursuant to Section 132D of the Companies Act, 1965, the Directors be and are RESOLUTION 8 hereby empowered to issue shares in the Company at any time and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit, provided that the aggregate number of shares issued pursuant to this resolution in any one financial year does not exceed 10% of the issued capital of the Company for the time being and that the Directors be and are hereby empowered to obtain the approval for the listing of and quotation for the additional shares so issued on the Kuala Lumpur Stock Exchange and that such authority shall continue in force until the conclusion of the next Annual General Meeting of the Company"; 7.2 Proposed Renewal of Shareholders' Mandate for Recurrent Related Party Transactions of a revenue or trading nature with NSL Group, HIMB Group, HLI Group and HL Credit Group, CWH Group, Southern Corporation, Su Hock, HBH and HBE, CHI, Kim Co and HL Asia "THAT: 1 approval be and is hereby given to the Company and its subsidiaries to enter into the recurrent related party transactions of a revenue or trading nature referred to in Section 5 of the Circular to Shareholders dated 23 May 2003 (the "Circular") with:- Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 74 Annual report

NOTICE OF ANNUAL GENERAL MEETING (CONTINUED) (a) NSL Group RESOLUTION 9 (b) HIMB Group, HLI Group and HL Credit Group RESOLUTION 10 (c) CWH Group RESOLUTION 11 (d) Southern Corporation RESOLUTION 12 (e) Su Hock RESOLUTION 13 (f) HBH and HBE RESOLUTION 14 (g) CHI RESOLUTION 15 (h) Kim Co RESOLUTION 16 (i) HL Asia RESOLUTION 17 who fall within the classes of Mandated Related Parties referred to in the Circular, which shall be considered and approved as separate mandates, provided that such transactions are in the ordinary course of business and are on terms not more favourable than those generally available to the public and not to the detriment of the minority shareholders; 2 such approval shall only continue to be in force until:- (a) the conclusion of the next Annual General Meeting ("AGM") of the Company; (b) the expiration of the period within which the next AGM of the Company after the date it is required to be held pursuant to Section 143(1) of the Companies Act, 1965 (but shall not extend to such extension as may be allowed pursuant to Section 143(2) of the Companies Act, 1965); or (c) revoked or varied by resolution passed by the shareholders in general meeting, whichever is the earlier; and 3 the Directors of the Company be and are hereby authorised to complete and do all such acts and things (including executing all such documents as may be required) as they may consider expedient or necessary to give effect to this resolution." 7.3 Proposed Renewal of Shareholders' Mandate for Recurrent Related Party Transactions of a revenue or trading nature among SSB Group "THAT: 1 approval be and is hereby given to the Company and its subsidiaries to enter into the RESOLUTION 18 recurrent related party transactions of a revenue or trading nature referred to in Section 5 of the Circular among SSB Group who fall within the classes of Mandated Related Parties referred to in the Circular, provided that such transactions are in the ordinary course of business and are on terms not more favourable than those generally available to the public and not to the detriment of the minority shareholders; 2 such approval shall only continue to be in force until:- (a) the conclusion of the next Annual General Meeting ("AGM") of the Company; (b) the expiration of the period within which the next AGM of the Company after the date it is required to be held pursuant to Section 143(1) of the Companies Act, 1965 (but shall not extend to such extension as may be allowed pursuant to Section 143(2) of the Companies Act, 1965); or (c) revoked or varied by resolution passed by the shareholders in general meeting, Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 75

NOTICE OF ANNUAL GENERAL MEETING (CONTINUED) whichever is the earlier; and 3 the Directors of the Company be and are hereby authorised to complete and do all such acts and things (including executing all such documents as may be required) as they may consider expedient or necessary to give effect to this resolution." 8 Special Resolution: 8.1 Proposed Amendment to the Articles of Association of the Company RESOLUTION 19 "THAT the existing Article 106 which reads as follows: "The quorum necessary for convening a meeting of the directors shall be five (5) and a meeting of the directors for the time being at which a quorum is present shall be competent to exercise all or any of the powers, authorities and discretions by or under these Articles vested in or exercisable by the directors generally." be amended by deleting the word "five (5)" in line 1 and substituting with the word "three (3)" to read as: "The quorum necessary for convening a meeting of the directors shall be three (3) and a meeting of the directors for the time being at which a quorum is present shall be competent to exercise all or any of the powers, authorities and discretions by or under these Articles vested in or exercisable by the directors generally." " 9 To consider any other business of which due notice shall have been given.

Notice of Dividend Entitlement NOTICE IS ALSO HEREBY GIVEN that a final dividend of 3% tax exempt for the financial year ended 31 December 2002, if approved, will be paid on 18 July 2003 to depositors registered in the Record of Depositors at the close of business on 24 June 2003. A depositor shall qualify for entitlement to the dividend only in respect of: (a) shares transferred into the depositor's securities account before 4.00 pm on 24 June 2003 in respect of transfers; and (b) shares bought on the Kuala Lumpur Stock Exchange on cum entitlement basis according to the Rules of the Kuala Lumpur Stock Exchange.

By Order of the Board

Lim Gim Siok Secretary

Penang 23 May 2003 Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 76 Annual report

NOTICE OF ANNUAL GENERAL MEETING (CONTINUED)

NOTES:

1. A member of the Company entitled to attend and vote at the meeting is entitled to appoint a proxy but not more than two (2) proxies to attend and vote in his stead. A proxy need not be a member of the Company and the provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. Where a member of the Company is an authorised nominee as defined under the Securities Industry (Central Depositories) Act 1991, it may appoint not more than two (2) proxies in respect of each securities account it holds with ordinary shares of the Company standing to the credit of the said securities account. 2. The Form of Proxy must be deposited at the Registered Office of the Company not later than forty-eight (48) hours before the time appointed for holding the meeting or any adjournment thereof. 3. Explanatory Notes on Special Business Ordinary Resolutions: (a) Authority To Issue Shares Subject to exceptions provided in the Companies Act, 1965, the Directors would have to call for a General Meeting to approve the issue of new shares even though the number involved is less than 10% of the issued capital. In order to avoid any delay and cost involved in convening a general meeting to approve such issue of shares, it is thus considered appropriate that the Directors be now empowered to issue shares in the Company up to an amount not exceeding in total 10% of the issued share capital of the Company for the time being for such purposes as they consider would be in the interest of the Company. This authority, unless revoked or varied at a general meeting, will expire at the conclusion of the next Annual General Meeting of the Company.

(b) Proposed Renewal of Shareholders' Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature This Ordinary Resolution proposed under items 7.2 and 7.3, if passed, will authorise the Company and / or its subsidiary companies to enter into recurrent related party transactions of a revenue or trading nature. This authority, unless revoked or varied by the Company at a general meeting, will expire at the conclusion of the next Annual General Meeting of the Company. Please refer to the Circular for more information.

Special Resolution: (c) Proposed Amendment to the Articles of Association of the Company The special resolution proposed under item 8 if passed, will change the necessary quorum for convening a meeting of the directors from the existing five (5) to three (3). Southern Steel Berhad 5283-X LAPORAN TAHUNAN 2002 Annual report 77

STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING (PURSUANT TO PARAGRAPH 8.28(2) OF THE LISTING REQUIREMENTS OF THE KUALA LUMPUR STOCK EXCHANGE) 1. Directors who are standing for re-election at the Forty-First Annual General Meeting of the Company Pursuant to Section 129(6) of the Companies Act, 1965 (a) YA Bhg Tun Dato' Seri Dr Lim Chong Eu Pursuant to Article 82 of the Company's Articles of Association (a) Dr Tan Tat Wai Pursuant to Article 88 of the Company's Articles of Association (a) Mr Yap Peng Leong 2. Details of attendance of Directors at Board Meetings There were five (5) Board meetings held during the financial year ended 31 December 2002. Details of attendance of the Directors are set out in the Directors' Profile appearing on pages 4 to 8 of the Annual Report. 3. Place, Date and Time of Forty-First Annual General Meeting The Forty-First Annual General Meeting of the Company will be held at the Topaz Room, Southern Steel Berhad, Level 3, 2723 Lorong Perusahaan 12, Prai Industrial Estate, 13600 Prai, Penang on Wednesday, 18 June 2003 at 10.00 am. 4. Further details of individuals who are standing for election as Directors No individual is seeking election as a Director at the Forty-First Annual General Meeting of the Company. This page has been deliberately left blank. 5283-X

FORM OF PROXY

I / We, of being a member of the abovenamed Company, hereby appoint of or failing whom of as my / our proxy to vote for me / us on my / our behalf at the 41st Annual General Meeting of the Company, to be held at the Topaz Room, Level 3, Southern Steel Berhad, 2723 Lorong Perusahaan 12, Prai Industrial Estate, 13600 Prai, Penang on Wednesday, 18 June 2003 at 10.00 am and at every adjournment thereof for / against* the resolution(s) to be proposed thereat.

My / Our proxy is to vote either on a show of hands or on a poll as indicated below with an "X"

FOR AGAINST RESOLUTION 1 To receive the Financial Statements and Reports RESOLUTION 2 To declare a final dividend of 3% tax exempt RESOLUTION 3 To re-elect Dr Tan Tat Wai as a Director RESOLUTION 4 To re-elect Mr Yap Peng Leong as a Director RESOLUTION 5 To consider and, if thought fit, pass the following resolution: "That pursuant to Section 129(6) of the Companies Act 1965, YA Bhg Tun Dato' Seri Dr Lim Chong Eu who has attained the age of 70 be re-appointed as a Director of the Company to hold office as a Director until the conclusion of the next annual general meeting of the Company." RESOLUTION 6 To re-appoint Messrs PricewaterhouseCoopers as Auditors and authorise the Directors to fix their remuneration RESOLUTION 7 To approve the payment of Directors' fees of RM340,000.00 As special business, to approve the following resolutions: Ordinary Resolutions: RESOLUTION 8 1 Authority to Issue Shares 2 Proposed Renewal of Shareholders' Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature with:- RESOLUTION 9 (a) NSL Group RESOLUTION 10 (b) HIMB Group, HLI Group and HL Credit Group RESOLUTION 11 (c) CWH Group RESOLUTION 12 (d) Southern Corporation RESOLUTION 13 (e) Su Hock RESOLUTION 14 (f) HBH and HBE RESOLUTION 15 (g) CHI RESOLUTION 16 (h) Kim Co RESOLUTION 17 (i) HL Asia RESOLUTION 18 3 Proposed Renewal of Shareholders' Mandate for Recurrent Related Party Transactions of a Revenue or Trading Nature among SSB Group Special Resolution: RESOLUTION 19 Proposed Amendment to the Articles of Association of the Company

As witness my hand this day of of 2003

No of Shares held:

Signature of Member(s)

* Strike out whichever is not desired. (Unless otherwise instructed, the proxy may vote as he thinks fit.) Notes: A proxy may but need not be a member of the Company and the provisions of Section 149(1)(b) of the Act shall not apply to the Company. To be valid this form duly completed must be deposited at the registered office of the Company not less than forty-eight (48) hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote or, before the time appointed for the taking of the poll. A member shall be entitled to appoint not more than two (2) proxies to attend and vote at the same meeting. A member who wishes to nominate more than one (1) proxy to attend the meeting must specify the proportion of shareholdings (expressed as a percentage of the whole) to be represented by each proxy. If no proportion of shareholdings is specified, the proxy whose name appears first shall be deemed to be entitled to vote in respect of 100% of the shareholdings of his appointor and the proxy whose name appears after shall be deemed to be appointed in the alternate. If the appointor is a corporation, this form must be executed under its Common Seal or under the hand of its attorney. Stamp

The Secretary Southern Steel Berhad Level 3, 2723 Lorong Perusahaan 12 Prai Industrial Estate 13600 Prai, Penang For KLSE’s use Reference no : KUALA LUMPUR STOCK EXCHANGE Date received : Officer in charge: Date of first contact with complainant: Contact Details

Status after 14 days: Group Communications Division Resolved Kuala Lumpur Stock Exchange Exchange Square, Bukit Kewangan Pending 50200 Kuala Lumpur

Details: Tel 603-2732 0755 Fax 603-2026 3700

COMPLAINT AGAINST PUBLIC LISTED COMPANY This form is intended to facilitate the lodgement of complaints Details of Complainant Type of Complaint: with the KLSE, by investors against Public Listed Companies (PLCs) Name : Misleading / inaccurate / insufficient disclosure of information; in Malaysia. Investors are encouraged, in the first instance, to amicably settle any differences directly with the PLC concerned. NRIC no: Failure to disclose material information in financial statements or annual reports; CDS no : Q: When can you make a complaint? Actions / lack of actions detrimental to the interest of Address: A: At anytime, preferably as soon as the problem occurs. shareholders; Directors of PLCs; Below are some instances when a complaint may be lodged against a PLC: Management of PLCs Telephone no: House • Misleading / inaccurate / insufficient disclosure of information; Share Registrars of PLCs; • Failure to disclose material information in financial statements Business and or annual reports; H / Phone Others (to specify) • Actions / Lack of actions detrimental to the interest of shareholders; • Directors of PLCs; Details of Public Listed Company If others, please specify: • Management of PLCs; Name : • Share Registrars of PLCs; Address: and • Others (to specify) Details of Complaint MY COMPLAINT IS AS FOLLOWS (Please provide a detailed account of the complaint in chronological order). You may type Have you tried to resolve this complaint with the relevant Public Q: What are the procedures to make a complaint? additional notes in a separate piece of paper. Listed Company? A: Procedure is very simple. For clarity, it is best to be in written form and directed to the KLSE. You can use any of the Yes following methods to submit your complaints: No • mail the attached Complaint Form to KLSE; or • fax the Complaint Form to 03-2026 3700 If yes, kindly indicate the name of the person contacted and his / her department. Q: How will KLSE handle the complaint? A: KLSE will handle the matter promptly and in any event, will contact the complainant not later than 14 days from receipt Signature: of the complaint. Date :