CHAIRMAN'S MESSAGE

Datuk Seri Hj Abd. Halim Hj Abd. Samad
CHAIRMAN

On behalf of the Board and the management, it gives me great pleasure to present the Group's 2010 Annual Report.

Although 2010 was a volatile and difficult year, the Group managed to maintain its profit record for the third year running. Indeed, business was forced to contend with various challenges in 2010 - such as the malaise affecting developed economies, the sovereign debt crises afflicting Portugal, Italy, Greece and Spain and assorted environmental crises in countries such as Australia and New Zealand which impaired economic production and drove up costs of raw materials.

Fortunately, the Asia Pacific region including Malaysia was relatively insulated from global turmoil thanks to strong domestic demand and growth in emerging economies. Malaysia's announcement of a New Economic Model (NEM) aimed at an economic renaissance and business and government reform was wellreceived by international markets. The NEM is underpinned by the Economic Transformation Plan (ETP) and the Government Transformation Plan (GTP), implementation of which is providing economic stimulus and should help Malaysia achieve a projected GDP growth of 6.8% for 2010 according to forecasts from the Malaysian Institute of Economic Research.

Dividend and Share Buybacks

We are encouraged by the fact that KUB remains in the black for the third year running, attesting to the continuing effectiveness of current corporate strategy under the stewardship of Datuk Mohd Nazar Samad. Although the Group revenues and profits experienced a drop in FY2010, we are pleased with our consistent performance in the face of continuing global economic difficulties.

For FY 2010, the Board has proposed a first and final dividend of 2.4 sen per ordinary share less 25% income tax, subject to shareholders' approval.

As of April 2010, the Group had renewed its proposal to buyback 10% of its share capital to reduce the number of shares on the open market in the hope of enhancing share value and to accumulate treasury stock.

Our objective for 2011 is to remain operationally profitable despite these threats, which will send a strong message that KUB Malaysia is determined to remain a robust business entity and icon of Bumiputera entrepreneurship.

Outlook for 2011

The landscape for 2011 looks no less challenging compared to 2010. Visibility has been greatly reduced on the global front as environmental and political crises are throwing spanners into the works of business all over the globe. For instance, Japan's status as the world's third largest economy and a global centre of manufacturing has been impaired by the tragic earthquake and tsunami of March 2011 and the consequent nuclear crisis, and affected global business as usual. Meanwhile, political upheavals in the Middle East and North America (MENA) are being watched carefully in order to avoid another devastating oil crisis while environmental crises such as earthquakes and tsunamis, climate change and global warming contribute to food security and inflation woes.

In spite of these global headwinds, Malaysia's GDP is expected to grow at 5.2% in 2011, according to MIER forecasts which are within the range of government forecasts of 5%-6% GDP growth in 2011. Other factors that will affect business will be inflation and a strong local currency. MIER projected a ringgit average of RM3.20 to 1USD for 2010 which should strengthen to 3.10 to 1 USD in 2011. MIER also expects BNM will raise its OPR (Overnight Policy Rate) to 3.00% at the end of 2011 from the current 2.75% due to higher inflation. The CPI (Consumer Price Index) is expected to increase 2.5% in 2011 as compared to 2.2% last year.

In response, the Group has put in place the necessary risk management measures to neutralise and mitigate these headwinds. Our objective for 2011 is to remain operationally profitable despite these threats, which will send a strong message that KUB Malaysia is determined to remain a robust business entity and icon of Bumiputera entrepreneurship. Going forward, we also intend to pursue organic growth by investing vertically and horizontally in our core business units. At the same time, we will ally ourselves with strategic partners to pursue sustainable longer-term projects which leverage on our core strengths and enable us to add specific value while earning recurring income.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

KUB Malaysia recognises our social responsibility to the community, especially the disadvantage and suffering as a result of the crises and disasters of 2010. The group channelled help towards victims of flood in Kuala Kedah, Kedah as well as CSR and breaking of fast programmes during Ramadan as part of our mandatory group CSR programmes. These contributions were not just monetary but we helped provide better infrastructure in these orphanages for the welfare of the orphans residing there. KUB also helped contribute improved learning facilities for orphans and the disadvantaged such as computers, reference books and educational tools.

ACKNOWLEDGEMENTS

The success of KUB Malaysia is very much a group effort. On behalf of the Group, I thank our customers for their ongoing patronage of our brands, products and services. Please continue to offer your feedback so we can improve and innovate on our existing and new offerings in order to serve you better.

To our shareholders, I hope that you will remain invested in KUB Malaysia. With your faith in us, we are committed to strive better and better.

On behalf of the Group, I wish to also express our appreciation to the Government and regulators for working to create a more competitive, transparent and business-friendly environment via initiatives such as the GTP and the ETP as well as the ongoing reforms of corporate governance and corporate and business legislation.

Our people are a key factor behind the Group's success. I thank them for their dedication, perseverance and hard work. Kudos to the management led by Group Managing Director, Datuk Mohd Nazar Samad for devising a sustainable business strategy and to the executives and all the staff for good execution and implementation. It is also important to maintain a strong element of continuity in the Group's leadership; the extension of Datuk Mohd Nazar Samad's contract of service for another three years commencing 1 March 2010 to 28 February 2013 supports this continuity.

I believe people power is a key element which has enabled the Group to maintain its profitable performance over the past three years despite earlier setbacks. Keep up the good work. The Group pledges to keep investing in our people and the relevant talent development programmes in order to keep the momentum going.

Last but not least, I wish to thank my fellow directors for their support and cooperation as we discharge our fiduciary duties in providing good governance and guidance to the Group and management. I believe the board as it stands today is well-balanced and diversified, offering a relevant mix of skills and experience. In particular, our Board Audit Committee has a strong composition of chartered accountants which is necessary as the country looks to converge with International Financial Reporting Standards by 2012. Complying with new regulations on fair value accounting standards will be tough for all preparers including the Group. We have identified fair value accounting as a challenge in our medium term growth strategies. Therefore, being equipped with the right accounting skills within the board and the finance function will help the Group comply with these new requirements in order to prepare financial statements that are true and fair.

Finally, I wish to thank our resigned independent and non-executive director Dato' Rosman Ridzwan for his services to the Board. During his tenure, Dato' Rosman offered us the benefit of his significant entrepreneurial experience which helped to guide Group strategy and nurture core businesses. On behalf of the Board and the Group, I wish Dato' Rosman all the best in his future undertakings.

As we move forward, it is my sincere wish that all of us at KUB Malaysia can interact more cohesively in future as we strive to take the Group to greater heights.

Thank you.