Dear Shareholders

The year in review

It gives me great pleasure to report that the financial year ended 30 June 2007 (“FY2007”) represented an outstanding year for the Group. The Group’s revenue increased 53% to $284.2M in FY2007 from $186.2M in FY2006: Its net profit doubled
to $31.2M in FY2007 from $15.7M in FY2006.

Our record revenue was boosted by continued sturdy demand from the oil and gas, marine and the recovering construction sectors. The Group saw healthy volume
growth across all its major product categories from structural steel to pipes and fittings. The strong performance also produced a record net profit after tax for the Group in the financial year.

With the anticipated strong demand for its products, the Group had embarked on and completed the construction of a warehouse extension at its flagship premise at 116, Neythal Road. The extension added another 5,000 square metres of covered warehouse space bringing the total available warehouse space at this site to 35,000 square metres. It would provide much needed storage area for the Group’s increasing inventory holding which included high valued products.

The Group’s properties enjoyed nearly full occupancy during the financial year as well
as an increase in rental rates. Rental income however, formed only a small percentage of the Group’s revenue.

During the financial year, the Group declared a bonus dividend and completed a rights issue of 1 rights share for every 4 existing shares held with an option for shareholders
to elect to use the bonus dividends declared to pay for the rights shares. The rights
issue was oversubscribed and the rights shares were listed on the Stock Exchange of Singapore on 7 December 2006.

Subsequent to the end of FY2007, the Group undertook a share placement exercise involving the issue of 49,500,000 new ordinary shares to several institutional funds. Apart from enhancing the shareholder profile of the Group, we envisage that this placement will help to stir more institutional interests in HUPSteel.

The new shares have been allotted and quoted on the Stock Exchange of Singapore since 24 August 2007. The share placement generated a cash inflow of approximately $27 million which is earmarked for working capital purposes in preparation to meet further growth in the volume of business in the current financial year 2008 and beyond.

Outlook

The Group expects robust demand for its products in-line with the optimistic outlook of the local economy for the coming financial year. Brisk activities are reported at shipyards, as well as projects relating to oil and gas and the construction sectors.

Requirements from the marine, oil and gas sectors would continue to provide a stable base for the Group’s revenue while the Group seizes the opportunity to grow its business from the construction sector. Projects like the Integrated Resorts, MRT line and the Marina Business and Financial Centre would lead to an increase in demand for the Group’s structural steel products, augmenting the demand from the construction of residential properties.

With global oil prices and consumption remaining high, it is expected that there will be no slowdown in oil exploration and related activities. As a consequence, more marine vessels will be needed to support these activities. This, in turn, augurs well for the Group’s pipe and fitting business which supplies to the oil and gas and marine sectors. The Group’s structural steel business will also benefit from these sustained activities.

Supply of steel products is expected to remain tight and lead time for certain products have been longer than usual although prices are not expected to fluctuate widely. This has led the Group to increase its inventory holding at the end of the financial year to meet customers’ needs.

The Group’s properties are expected to generate healthy rental income and maintain good occupancy rates. The market value of these properties is expected to improve amidst the property boom. The management will constantly evaluate business options relating to these properties that will enhance good shareholder returns.

The Group will continue to seek out and review new business opportunities, both locally and overseas, to penetrate and expand in other markets especially in the Asia Pacific region, and to source for and introduce new products to meet customers’ needs.

Dividend

The Directors are pleased to recommend a final dividend of 0.5 cent (FY2006: 0.5 cent) per share less tax at 18%. Given the Group’s strong operating performance, the Directors further propose a special dividend of 1.0 cents (FY2006: 1.5 cents) per share less tax at 18% to express our appreciation for the support from our shareholders.

In addition, the Board of Directors is also recommending a bonus dividend of 3.049 cents less tax at 18% (2.5 cents net) and proposes a renounceable non-underwritten rights issue of shares in the ratio of 1 rights share for every 4 existing shares held by shareholders with a subscription price of $0.10 per rights share. Shareholders will be given an option to elect to use the bonus dividend declared to fully subscribe for their rights shares without further cash outlay. One of the aims of this exercise is to utilize most of the accumulated Section 44A tax credit before it expires so that shareholders may benefit from the tax refund if their personal income tax rate is lower than the corporate tax rate.

The Board of Directors is looking forward to the support of the shareholders to approve the rights issue at the forthcoming Annual General Meeting to be held on 26 October 2007.

Acknowledgement

I would like to thank my fellow Directors for their support and wise counsel and the Management and staff for their loyalty, dedication and contributions to the Group. I would also like to welcome Mr Philip Chan Kam Loon and Mr Lim Chee San who joined us as Independent Directors on 1 November 2006. Between them, they bring along years of experience in accounting, finance, legal and corporate governance to the Board.

I would also like to express the Group’s appreciation to our customers, suppliers and business associates for their continuing support.

Finally, I would like to thank all of you, our shareholders, for your commitment, support and loyalty to the Group.

Tang See Chim
Non-executive Chairman