Dear Shareholders,

On behalf of the Board of Directors, it is my pleasant duty to present to you the Annual Report and Audited Financial Statements of Scanwolf Corporation Berhad (“SCB”) and its Group of Companies (”the Company”) for the financial year ended March 31, 2011.

THE YEAR IN REVIEW

SCB continued to be profitable for the financial year ended March 31, 2011. However, the level of profitability did not reach the expectation of the Company in spite of the improved revenue generated compared to previous financial year. The slightly lower profit recorded can be attributed to various factors which proved difficult to bring under our control. The strengthening of the Ringgit against the US Dollar is one of the major factors that seriously dented our bottom-line.
Other factors that caused uncertainty in the business environment during this financial year includes various natural disasters happening around the world, the latest being the earthquake in Japan recently. In fact, multiple calamities that happened almost at around the same time in various part of the globe caused great financial loss as well as impairment of their natural resources and productivity capacity for the countries affected. In addition, political upheavals in the Middle-East further worsen the business environment. All these resulted in the rise of various commodity prices, petroleum in particular. This not only led to the rise in PVC resin prices but also the rise in the prices of various other chemicals and raw materials which we use for our production.

It is under this trying and volatile economic environment that Scanwolf Corporation Berhad Group had to operate in for almost the whole of the financial year. During the financial year, we saw the prices of fuel and energy rising every other month which resulted in the steep rise in every aspect of our production cost. Raw material cost rose to unprecedented levels and the Ringgit strengthening to its strongest level since 1997 by the end of the financial year.

In face of the challenging market conditions in 2011, your management strengthened the various proactive steps it adopted previously to better utilize our various resources. Some of these key initiatives included tapping whatever opportunities available to increase overall productivity such as further improving operational procedures, optimizing the use of the Company’s production capacity, minimizing wastages and maintaining staff morale and management effectiveness. Senior management executives remained vigilant at all times to stay on top of the situation.

During the year under review, besides managing the supply side of the equation, attention was given to increase the demand of our products. Your management stepped up marketing efforts both at the domestic and international levels to widen the customer base. At the international level, we participated in Index Dubai 2010 exhibition held in UAE and also the Malaysian International Furniture Fair 2011 (MIFF 2011) held in Kuala Lumpur. Our Group markets our product locally and currently also exports to more than 30 countries worldwide in the ratio of 36.10% local and 63.90% foreign sales. The Group’s wide geographical coverage is intended to make us less dependent on a particular market and any single country thereby reducing our country and concentration risks.

Briefly highlighting on other corporate matters, there has been no new development on the lease of land of 14,100 square meters of industrial land in Vietnam for future business expansion as reported previously. The handover of the land by the Developer of this business park project is now expected to be in 2012. In view of the changing business and economic environment since the land was first acquired, your Management will do a fresh evaluation to determine whether to proceed with the construction of the factory to expand our production capacity as originally planned.

Taking heed of the very competitive environment of our current core business, your Management has been actively deliberating on potential new strategic direction for the Company. Among others, diversification into other viable business sectors has been mooted. Ventures into property development have been closely evaluated and should the right partner and projects become available, they will be carefully considered.

Apart from the business issues, during the financial year under review, our Company continued to pursue the recruitment of quality management talent to enhance its human capital capability. However, this has proven to be not an easy task to hire talent given our operations is based in Tronoh, regarded as an out- of-town location which is considered rather unattractive by potential candidates. Nevertheless, more effort will be put into achieving our target. Attention also continued to be given to improving the skill of our human resources and the implementation of a more comprehensive appraisal and performance evaluation system to ensure fair reward for the employees’ contribution during the year. There is also an on-going plan to diversify the recruitment of production operators from various sources to ensure a healthy mix. As can be seen, the Company believes that human capital is most important for the future development of SCB into an established and stable Company.

In terms of corporate governance, the Company strongly believes in and strongly adheres to the principles and best practice of good corporate governance which is reported in greater details under our Statement on Corporate Governance.

FINANCIAL PERFORMANCE

Despite the various challenges faced during the financial year, the Group is able to continue to record profits for the financial year ended March 31, 2011 although its profit performance fell behind that achieved in the previous financial year.
Nevertheless, for the FYE March 31, 2011, we recorded revenue of RM41.69 million. This represents an increase of RM2.35 million or 5.97% from the revenue achieved in FYE March 31, 2010. This increase was attributable to our ability to have our customers absorbed some of the higher cost of production.

The Group pre-tax profit decreased by 40.19% to RM1.89 million as compared to RM3.16 million recorded in the previous financial year. Profit after tax attributable to shareholders in FYE 2011 decreased to RM1.52 million, a decrease of 39.44% from RM2.51 million previously. Although our revenue improved during the financial under review, fluctuation in the USD/Ringgit exchange and increasing cost of materials dampened the eventual profit figures.

Export sales contributed 63.90% of the total revenue amounting to RM26.64 million as compared to RM25.11 million achieved in FYE 2010, an increase of 6.09%. Local sales continue to grow from RM14.23 million recorded in the previous to RM15.05 million for FYE 2011, an increase of 5.76%.

At the close of the FYE March 31 2011, shareholders’ fund stood at RM42.53 million. The cash flow and working capital situation remains at a healthy level as we move into the new financial year.

DIVIDEND

We take pride in being able to continue to reward our loyal shareholders as the Company continues to be profitable.

In the FYE 2011, the Group paid an interim dividend tax-exempt dividend of 1.00 sen per ordinary share of RM0.50 each amounting to RM787,690 on 17 January 2011. The Board is pleased to recommend a final tax-exempt dividend of 2.00 sen per ordinary share of RM0.50 each amounting to RM1,547,060 in respect of the financial year ended March 31, 2011, bringing the total dividend declared for the year to 3.00 sen per ordinary share of RM0.50 each amounting to RM2,334,750. The payment of the proposed dividend will not adversely affect the Company’s working capital requirement for the new financial year.

The final dividend is subject to shareholders’ approval at the forthcoming Annual General Meeting

LOOKING AHEAD

Market conditions will remain competitive and challenging in the new financial year. US dollar is expected to continue to weaken. Raw material costs are seen to continue to rise. Your Board and Management will remain alert and vigilant and continue to be pro-active in monitoring and managing the situation.

Going forward, the Company will enhance its international presence by continuing to entrench its products over a wider geographical reach, paying special attention to those markets that we can be competitive and can excel.

On the domestic front, the Company will continue to capitalize on its reputation as a market leader in Malaysia by leveraging on its product quality, efficient service and established network to strengthen market share.

In anticipation of inflationary pressures, our Group will strive to enhance its efficiency levels to ensure cost effectiveness. Significant focus on productivity, stringent quality control and constant endeavors in adding value to our product will continue to be our key differentiating factors in this highly competitive and challenging industry to enable us to stand distinctly apart from our competitors both locally and abroad.

While principally focusing on its core manufacturing activities, there are prospects that the Company will move into other viable business sectors as a new strategy to diversify into other revenue-generating business in the new financial year as part of a longer term plan to move the Company forward. Shareholders are assured that careful thought and evaluation will be undertaken before venturing into any new business.

Barring unforeseen circumstances, the Company is expected to perform satisfactory in the coming financial year.

ACKNOWLEGEMENT

The Board of Directors would like to thank the Management and staff of the Company for their hard work, dedication and loyalty to the Company.

The Board of Directors fully acknowledges that the strong support of customers and shareholders coupled with the continued dedication of the staff and management will be the bedrock of the Company to meet new challenges in the years ahead.

The Board of Directors would also like to express its sincere appreciation to our customers, shareholders, business associates, government authorities and bankers for their continued confidence in and support of SCB.
Last but not least, my vote of thanks to my fellow Directors for their fine co-operation and teamwork which lighten my role as a Chairman of SCB.

NEOH CHOO KEAN
Independent Non-Executive Chairman