On behalf of the Board of Directors, I am pleased to present the Annual Report and Audited Financial Statements of Lion Diversified Holdings Berhad for the financial year ended 30 June 2009.
Financial Performance
The global economy came under severe stress as the deepening recession in the advanced economies intensified. The effects of job cuts and fears of a protracted recession have led to severe contraction in private sector demand, accelerating the drop in global demand for goods and services, and the correction in commodity prices. Being an integral part of the global economy, Malaysia was not spared the impact of the global slowdown. As exports declined, growth has increasingly relied on domestic demand, particularly private consumption and government spending. In spite of the turbulent economic environment, the Group recorded higher revenue of RM1.2 billion in the current financial year as compared to RM0.3 billion previously for its continuing operations. Correspondingly, a better operating profit of RM178 million was achieved for the year under review. The favourable performance was mainly attributed to a full year’s results of the Group’s steel operation as compared to less than a month’s results last year following the commencement of production of the new direct reduced iron plant in June 2008. Notwithstanding the increase in revenue and operating profit, the Group incurred a much higher pre-tax loss of RM577 million as compared to RM14 million a year ago, due mainly to the associated companies losses. The adverse operating environment in the steel industry coupled with the sharp drop in commodity prices had resulted in our associated companies reporting higher losses on account of lower revenue and substantial write-down of its inventories.
Corporate Developments
During the financial year, the Group had undertaken the following significant corporate events:
	In December 2008, the Company completed a renounceable rights issue of 5-year 4% irredeemable convertible unsecured loan stocks ("ICULS") at 100% of its nominal value and raised a gross proceed of RM327,462,064.
	In February 2009, the Group completed the following:
	(i)	Acquisition of RM900 million nominal value of zero-coupon redeemable secured Class B(b) RM denominated bonds issued by Lion Corporation Berhad ("LCB") ("Bonds") for a cash consideration of RM400 million and the conversion of the Bonds into 804.46 million new ordinary shares of RM1.00 each in LCB ("LCB Share");
	(ii)	Subscription of 100 million redeemable cumulative convertible preference shares of RM0.01 each at a premium of RM0.99 each in Megasteel Sdn Bhd ("Megasteel") for a cash consideration of RM100 million;
	(iii)	Acquisition of 66,666,667 ordinary shares of RM1.00 each in Megasteel, representing approximately 11.1% of the existing issued and paid-up capital of Megasteel from Limpahjaya Sdn Bhd, a wholly-owned subsidiary of LCB, for a cash consideration of RM100 million; and
	(iv)	Disposal of an ongoing property development project known as Bandar Mahkota Cheras Project together with four parcels of undeveloped land in the Mukim of Cheras, District of Hulu Langat, Selangor to Pancar Tulin Sdn Bhd, a whollyowned subsidiary of LCB, for a consideration of approximately RM89.95 million, satisfied by the issuance of 89,948,000 new LCB Shares at an issue price of RM1.00 per LCB Share.
Full details of the various other corporate proposals are contained in page 119 of this Annual Report.
Dividend
The Board is pleased to recommend a first and final dividend of 1.0 sen per share (2%), tax-exempt, for the approval of shareholders at the forthcoming Annual General Meeting. Net dividend payable will amount to RM7.4 million.
Corporate Social Responsibility
We recognise the importance of Corporate Social Responsibility (CSR) as an integral part of business and incorporating a CSR framework into our business plan to enhance stakeholder confidence, accountability and transparency. CSR is an important component of good business practice aimed at improving society and the environment.
Society
In carrying out its business activities, the Group is mindful of its responsibilities as a corporate citizen, in contributing to society while enhancing the bottom-line and shareholders’ value. The Group is focused on assisting the community through education and medical care via the two Foundations established by the Lion Group of Companies of which the Group is a member. The Lion-Parkson Foundation disburses funds for education and charitable needs; and every year, awards scholarships and interest-free education loans to undergraduates in the local universities. The Lion Group Medical Assistance Fund provides financial assistance to needy Malaysians who require medical treatment including surgery, purchase of equipment and medication. The Fund also sponsors community health programmes such as medical camps and the purchase of dialysis machines for Dialysis Centres providing subsidised treatment to the less fortunate. The Group also supports the community by contributing to fundraising and donation drives and responding to the plight of disaster victims locally and elsewhere.
Environment
In keeping abreast with technology and industry developments, the Group seeks to uphold environmental concerns through strict compliance of its operations with the environmental laws and regulations governing the industries in which it operates. In the face of increasing demand for energy and other natural resources, the Group is also identifying alternative sources of energy such as natural gas, and opting for new technologies that are environmentally friendly, for our business operations. The Group subscribes to the safety, health and environment regulations with a systematic approach reinforced by constant training and monitoring to ensure the safety and well-being of our employees.
Prospects
Notwithstanding the uncertain market conditions, the Group is optimistic on the medium and long term prospects of the steel market. Several initiatives introduced by the Malaysian Government and the massive stimulus packages being implemented around the world will help to create some stability in the steel operating environment and also add to improvements of underlying fundamentals for consumption growth. The recent liberalisation of the local steel sector also augurs well for our associates’ operation. Coupled with the reduction in the iron ore pellet and natural gas prices, the core feedstock for our DRI operation, a better performance is expected for our steel operation in the coming financial year. As for the Property Division, the operation is expected to perform better in the light of the recovery of the property industry, whilst our Computer Division is anticipated to maintain its profitable position. Management will continue to be vigilant in controlling costs and to augment initiatives to expand market share as well as to develop new markets.
Acknowledgement
On behalf of the Board, I wish to extend my sincere thanks to all our valued customers, financiers, business associates, Government authorities and shareholders for their continued support, co-operation and confidence in the Group. I would also like to convey my sincere appreciation and gratitude to my fellow Directors for their invaluable guidance and contributions throughout the year as well as to record my appreciation to our employees at all levels for their dedication, commitment and contributions to the Group.
TAN SRI WILLIAM H. J. CHENG Chairman