"On behalf of the Board of Directors of Salcon Berhad, I have pleasure in presenting the Annual Report and Audited Financial Statements of the Group and Company for the financial year ended 31 December 2010"

The Malaysian economy continued to expand in the aftermath of the global financial crisis with a GDP growth of 7% in 2010. Against this positive backdrop, the Group delivered another year of increased profitability and improved asset quality and thus, ended the year with a positive set of results in 2010.

For the financial year ended 31 December 2010, the Group registered a revenue growth of 13% to a record high of RM418 million from RM370 million in 2009. In line with the increase in revenue, the Group's pre-tax profit grew to RM37.1 million from RM33.4 million or an 11% increase compared to the previous year. Group profit after tax also increased in tandem to RM28.5 million or 10% increase. Earnings per share was slightly lower at 4.51 sen compared to 4.72 sen the previous year due to higher minority interests.

The double digit growth is attributable to the strategic initiatives by the Group to ensure sustainable and higher returns and optimizing opportunities to enhance the value of our concession investments. Notable projects secured during this period include the Sg. Labu Water Treatment Plant project and several sewerage treatment projects in Kelantan.

In terms of the Group's consolidated balance sheet, shareholders' funds expanded to RM309.5 million as at 31 December 2010 whilst cash and cash equivalents totalled RM145 million. Gearing ratio stood at 0.76 times shareholders funds.

Consistent with our stronger overall performance, the Board is recommending a dividend of 1.5 sen per share equivalent to a total amount of RM7.1 million. Salcon will continue to pursue a dividend practice that recognises the need to achieve a balance between providing reasonable returns to shareholders whilst conserving funds for new investment opportunities critical to long term growth.

During the year, the Group was recognized for its contribution and role in the water and wastewater industry by its peers on both the local and international fronts. The recognition of the Group's management and technical accomplishments further enhances its corporate image and boosts stakeholders' confidence. These are crucial ingredients to sustain profitability in facing a challenging global economy.

Amongst the accolades received were the "6th Asia Water Management Excellence Awards" by the Asian Water Magazine and Malaysia Water Association for management excellence and leadership in the industry for having brought significant contribution to the advancement of the water and wastewater industry in the region.

In addition to this, the Group was also awarded the "2010 Malaysia Frost & Sullivan Water Treatment Company of the Year" by the renowned International Research Company, Frost and Sullivan. Salcon is recognised as a specialist in mechanical and electrical works - which encompass the intricate engineering design and build of water treatment plants. The judging panel comprising of leading industry analysts highlighted that over the years, Salcon has strengthened its position in Malaysia as an industry leader.

MILESTONE DEVELOPMENTS

Strategic Investment Platform

During the period under review, the Group entered into an agreement to divest 40% of its holdings of six (6) of its China concessions. The move seeks to unlock and maximize shareholders value, whilst elevating the Group's strength and stature through a strategic partnership with the Emerging Market Infrastructure Fund Pte Ltd (EMIF), which is jointly managed by the Australian based Challenger group and Japanese conglomerate, Mitsui Co.

EMIF's international infrastructure business and financial management expertise, coupled with Salcon's considerable experience and proven track record in the water and wastewater business, would create a robust strategic platform for the continued growth and expansion of the Salcon Group in China to meet the critical needs in the fast growing Chinese water and wastewater sector. The gross proceeds of RMB200 million generated from the sales would be used to fuel future growth and tap opportunities in the China water sector.

The divestment resulted in an increase in equity of RMB88 million to the Group and an increase in Net Asset per share to RM0.74 per share or RM0.88 per share (if based on fair value on the entire 100% stake).

Expanding Concessions Portfolio

During the period under review, the Group, via its joint venture company, Jiangsu Salcon Water & Environment Development Co. Ltd acquired 100% of Yizheng Rong Xin Wastewater Treatment Company Limited (Rong Xin) for a total purchase consideration of RMB44.0 million. (or RM20.28 million)

The Group, via Rong Xin, has awarded a 30-year concession for the treatment of municipal wastewater in Yizheng city with a treatment capacity of 50 MLD (million litres per day). This acquisition is part of the overall plan for the integration and consolidation of water and wastewater works in Yizheng city and its environs. The Group currently owns the Yizheng treated water pipeline concession which is under construction.

The signing of this agreement marks Salcon's 8th concession in China. Yizheng city is located in Jiangsu Province, one of the most prosperous provinces in China.

The Group looks forward to the completion of construction works of 3 existing concessions namely Changle water, Changle raw water and Nan An raw water works which will see a doubling in the production capacity of the Group's China operations.

BUSINESS PROSPECT

In Malaysia, growth is expected to continue in 2011 at a moderate rate of 5%, driven by the implementation of the Government's Economic Transformation Programme. In terms of water and wastewater infrastructure works, government expenditure is currently spread across several government agencies and initiatives including spending under the 10th Malaysian Plan, the various economic development corridors and Pengurusan Asset Air Berhad or PAAB.

Under the 10th Malaysian Plan, the Government has allocated approximately RM1.8 billion for water projects spread over 2 years whilst in the East Coast Economic Region (ECER) and Sarawak Corridor Renewable Energy (SCORE), approximately RM271 million worth of various infrastructure works including water supply facilities will be given priority in 2011. Besides this, PAAB has rolled out various tenders for water supply facilities in the states where water assets have been acquired by them, namely Negeri Sembilan, Melaka, Johor and most recently in Perlis. PAAB has announced plans to raise up to RM20 billion from an Islamic bond sale to fund working capital, develop new water infrastructure assets and refinance existing loans.

Given the good prospects and an ever increasing demand for drinking water, the Group sees excellent opportunities to leverage on our expertise to present tailor made solutions to our clients. With its proven track record in water and wastewater management services, the Group is confident of being able to capitalize on all opportunities to enhance our position and participation in the local market.

In its overseas ventures, the Group shall continue to leverage on its track record and technological know-how in key growth markets such as Vietnam, Cambodia, Sri Lanka, Indonesia and India. In these areas, the Group has formed strategic tie-ups with influential local partners to jointly pursue new potential projects. The Group has participated in various tenders and submitted proposals for water and wastewater projects/ concessions in these countries and looks forward to securing projects in these high growth markets in the coming years.

In China, with the enlarged Salcon-EMIF platform, the Group is confident of being able to expand and seize the abundant opportunities in the China water and environmental market and to be much more competitive in the long run. The Group shall continue to develop new lucrative concessions to secure a stable and recurrent income stream via prudent investment strategies which has stood in good stead thus far.

The Group will strive to sustain and build on current performance through efficient execution of contract works and aggressivere concession business so as to build on recurrent income streams to ensure sustainability and a steady earnings base.

Based on its established track record and proven technical expertise, the Group is confident on being able to maximize opportunities arising in Malaysia as well as the various geographical areas which it operates in.

CORPORATE RESPONSIBILITY

The Group firmly believes in implementing best practices in corporate governance to uphold the high standards expected of it in terms of integrity, transparency and accountability throughout the Group's business operations. The Group's commitment to corporate governance is outlined in the Statement on Corporate Governance and other related reports found in the relevant sections of this Annual Report.

ACKNOWLEDGEMENTS

The Group is blessed with the unparalleled support, contribution, dedication and professionalism of the management and employees across all divisions and levels, and on behalf of the Board, I would like to express our gratitude for their drive, dedication and perseverance in contributing to the Group's top and bottom lines.

There were several changes to the Board composition during the year. Early in the year, we were saddenedby Group has lost an energetic, committed and inspirational teacher and leader who served the company for 30 years.

We saw the resignation of two (2) directors. On behalf of the Board, I would like to record our sincere appreciation and highest gratitude to Ir How See Hock for his dedication and contribution during his tenure as the Chief Executive Officer ofSa independent non-executive director. I take this opportunity to wish them all the best for their future endeavors. I am pleased to welcome Dato' Choong Moh Keng, a man of considerable experience in the construction sector as a new member to the board.

Last but not least, my sincere appreciation to my fellow Board members, whose guidance and counsel during the year have been invaluable and to our shareholders, clients, partners and associates, as well as the Government Agencies for their unwavering support.