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Chairman's Statement

On behalf of the Board of Directors of Knusford Berhad ("Board"), I am pleased to present the Annual Report and Audited Financial Statements of the Company and the Group for the Financial Year Ended 31 December ("FYE") 2016.

Overview of Financial Performance

For FYE 2016, the Group reported revenue of RM129.8 million, representing a decrease of approximately RM21.3 million as compared to revenue of RM151.1 million in FYE 2015. The Group also reported a loss before tax of RM16.9 million for FYE 2016 as compared to a profit before tax of RM5.0 million in FYE 2015. The Group's FYE 2016 results were mainly attributable to the decrease in overall sales volume, particularly in our trading and services division.

FYE 2016 was a challenging year for the national economy attributable to foreign and domestic factors. Malaysia was confronted with severe economic challenges during the year, with global prices of commodities that began to fall in 2015 continuing to do so in 2016, a hike in US interest rates causing the Ringgit to depreciate, financial market volatility and reversal of capital flows, and weaker consumer sentiment across the country, all of which had impeded growth and economic activity. In the property sector, overly cautious sentiment among buyers, financiers' tightening of terms on loans and escalating prices had resulted in a softer property market.

Moving Forward

Despite all the challenges, the Group will continue to move forward by focusing on its core businesses in trading and services, civil construction & engineering and property development.

In our trading and services division, the Group will continue to take all measures to be more cost effective and efficient, in order to sustain its business in this ever competitive sector. This division is expected to continue to be the main source of the Group's revenue.

Meanwhile, the civil construction & engineering division is showing good signs of sustained progress. The division has embarked on oil and gas onshore construction with the Group's construction arm being awarded the Engineering, Procurement, Construction and Commissioning ("EPCC") of Buildings contracts in Pengerang, Johor by PRPC Utilities and Facilities Sdn Bhd (a wholly-owned subsidiary of PETRONAS). This is indeed a solid recognition of our ability and strength in the construction industry. The Group had also on 26 February 2017 entered into an agreement with ArthaLand Corporation ("ArthaLand") and China Railway Dongfang Group Sdn Bhd for the purpose of undertaking an Engineering, Procurement and Construction ("EPC") contract of ArthaLand's Cebu Exchange Project located in Cebu, Philippines. The project is subject to finalisation and award of the EPC contract by 30 June 2017. The date of commencement of the scope of works is expected to be on 1 September 2017, with completion expected to be on 31 May 2021.

The property division, despite setbacks from the cooling measures by Bank Negara Malaysia, will continue to develop its land bank in Kajang with the upcoming completion of its 112 units Oasis Kajang project and the launch of 315 units of affordable homes.

Industry Overview and Prospects

Although 2016 was a challenging year for Malaysia and the global economy as a whole, we are cautiously optimistic that 2017 will be a stronger year for the country and for the Group.

The construction sector is forecast to grow more than 7% in 2017 following the commencement of the Pan Borneo Highway project in Sabah and Sarawak, development of new townships and corridor development projects, construction of MRT Line 2 and so forth. Meanwhile, the property market is anticipated to experience spill-over effects resulting from the 11th Malaysia Plan projects especially large transportation projects, affordable housing policy, first home buyer schemes and peoples' and government servants' housing programmes.

Therefore, the Group will reposition itself to take advantage of and to reap the benefits of such programmes that are made available by the Government, in order to maximise its revenue and profitability in 2017.

The Board will continue to seek and explore new business opportunities and to tender for new projects in Malaysia and ASEAN in its efforts to grow and prosper.

Corporate Governance

The Board recognises the importance of adopting good corporate governance and is committed to meet all applicable rules, regulations, norms and standards to ensure that we meet the expectations of all stakeholders in this regard.

Acknowledgment

On behalf of the Board, I would like to express my sincere appreciation to our former Director, Mr Lim Jenq Kuan, for his invaluable contribution to the Group during his tenure in office.

I would also like to express my gratitude to all our valued customers, partners, regulators, bankers, business associates and shareholders, for their continuous support and confidence in the Group.

Last but not least, I would like to extend my gratitude to the Directors for their undivided support and to the management and employees of the Knusford Group for their hard work and loyal dedication.

DYAM Tunku Ismail Ibni Sultan Ibrahim
Chairman