Executive Chairman's Statement

(extracted from Annual Report 2007)

THE MALAYSIAN ECONOMY

Driven by robust domestic demand, the Malaysian economy grew by 6.3% in 2007, up from 5.9% in 2006, its fastest pace in three (3) years. This is despite a weaker external environment. A more diversified economic base with the services sector recording a surplus for the first time and the turnaround of the construction sector to record a positive growth of 4.6% after three (3) consecutive years of decline had, among others, strengthened the economy's resilience.

For 2008, Bank Negara Malaysia has forecasted a favourable outlook for the Malaysian economy to expand by 5% - 6% on the back of expected strong domestic demand, a more diversified export markets and high prices in crude oil, palm oil and rubber. All sectors, except for manufacturing, are projected to record strong growth in 2008 with the construction sector to expand by 5.5% led mainly by higher activity in the civil engineering sub-sector from increased implementation of projects under the Ninth Malaysia Plan (9MP).

However, as a small and open economy, the Malaysian economy will be affected by the triple threat of economic weakness, inflation and financial market risks in the U.S and its spillover effects outside the US arising partly from the losses stemming from the US mortgage crisis estimated by the IMF to be USD1 trillion. While expectation is for global growth to moderate in 2008, it is expected that growth momentum will be sustained in Asia, Middle East and Latin America regions supported by resilient investment spending and domestic consumption.

REVIEW OF OPERATIONS

Protasco Group is principally engaged in construction, engineering services and consultancy, education, training and trading. Construction encompasses road construction, upgrading, rehabilitation and maintenance and building construction. Engineering services and consultancy include site investigation, slope studies, pavement evaluation and data collection, traffic studies, geotechnical and structural forensic engineering services and research.

During the year, our two long-term concessions to maintain roads for the Federal Government, and a long-term engineering services concession continued to provide steady recurring income and cash flows. The three long-term 15-year concessions with a remaining value of about RM1.9 billion in outstanding billings are :

• Federal road maintenance concession of about 6,200km ending February 2016 in Kelantan, Terengganu, Pahang and Selangor. It covers routine and periodic maintenance as well as emergency works.
• Federal road maintenance concession of about 420km ending September 2018 in Sibu, Bintulu and Mukah divisions, Sarawak. It also covers routine and periodic maintenance as well as emergency works.
• A RM348.3 million fee-based engineering services concession from the Federal Government ending December 2011. The range of services provided includes geotechnical, structural and material testing, site investigation and soil testing, pavement evaluation, materials certification, product listing, training and research & development activities.

In addition, we have been awarded a long-term contract for a period of seven (7) years in February 2008 for the maintenance of approximately 3,500km state roads in Selangor valued at about RM245 million. The work will begin upon receiving a Letter of Commencement from the relevant authorities.

Besides the concessions and long-term contract, the Group is currently undertaking local and overseas projects. These projects include:-

During the year, the Group has also undertaken and completed slopes related projects, collection of roads data and conducting international capacity and skills training programs. The Group also undertook a feasibility study for the Construction Industry Development Body (CIDB) of Malaysia on the construction of the Damascus Ring Highway in Syria. This Government to Government (G to G) project was awarded by Malaysia External Trade Development Corporation (MATRADE).

OUR PEOPLE

As an emerging knowledge-based organisation where our people is our greatest asset, we are aware that we have to be competitive in the global environment in terms of our people having the right mindset and possessing the required level of skills and competencies at all levels. We have and will continue to nurture our people to develop a strong commitment to the Group's success, to be achievement oriented, motivated by a sense of ownership and the importance of always having a high level of integrity.

To achieve these, we have evaluated the current capabilities of our people and to understand their expectations in working for the Group. In this regard, we have implemented the Joint Consultative Committees comprising members from our people at various levels and management to obtain feedback on any matters relating to our people and business activities of the Group. We have also implemented sharing sessions on various topics and initiated online performance appraisal.

The Group is committed to actively develop our human capital by continuing to invest resources and time to inculcate in our people the core values of the Group by way of, amongst others, maintaining various forms of communication channels between our people and management, and staff development programmes.

DIVIDENDS

For the financial year ended 31 December 2007, the Company had paid an interim dividend of 10.96% less 27% taxation or a net dividend of approximately 4 sen per share on 15 January 2008. Subject to shareholders' approval at the forthcoming Annual General Meeting, the directors are recommending a final dividend of 10.82% less 26% taxation or a net dividend of also approximately 4 sen per share. Total gross dividend for the year under review at 10.89 sen per share thus exceeds the previous year total gross dividend of 9.65 sen per share. Based on the 2007 average share price, the dividend yield is 11%.

OUTLOOK

With the Malaysian economy expected to remain on a steady growth path in 2008 plus the implementation of projects under the 9MP, the Group is confident that it should do better this year. This is also because we expect certain overseas projects, which we are pursuing, to bear fruit. In addition, the Group is embarking on a technology-based business venture which we hope will take-off in the medium term.

APRECIATION

Just as in previous years, 2007 has been a challenging year. In this regard, we wish to express our sincere appreciation to our clients, bankers, shareholders, board members, management, people and business associates for their continuing support.

We also wish to, in particular, register our gratitude to the various authorities for their invaluable guidance and advice in the conduct of our business activities.

Thank you.

Dato' Hasnur Rabiain Ismail
Executive Chairman