This strategy will improve the Group's profitability in the short term and position the company to ride the future upturn in the construction industry. Ultimately, we intend to strengthen our position as one of the lowest cost, most integrated building and construction materials suppliers in Singapore and subsequently throughout the region. It was, in short, a year of strategic re-positioning for the Hong Leong Asia Group.

During the year 2000, three loss making companies constituting the Group's investment in quarrying and associated transport activities were sold for a profit of $1.7 million. In their place, the Group acquired Karimun Granite for approximately US$27.2 million (S$47.4 million). Apart from being the largest and lowest cost hard rock quarry operation in Southeast Asia, Karimun Granite is also the region's largest supplier of marine rock for use in reclamation projects and undersea cable and pipeline protection applications.

In July, as part of the overall asset rationalization exercise, the Company increased its shareholding in Island Concrete by 7.81%, effectively bringing its total interest in the company to 76.51%.

The Group also acquired Optimix Concrete Pte Ltd, a medium sized and efficient ready mixed concrete supplier.

Optimix has since been fully integrated into Island Concrete and the combined operations rationalized. The combined market share of Optimix and Island Concrete is approximately 11%, making the Group one of the largest market players in Singapore.

After the return of Hong Kong to Chinese sovereignty, the Hong Kong market was progressively opened to competition from low cost China products. Lower production costs in China and a severe downturn in construction activity in Hong Kong made the precast concrete business unviable both now and in the future. At the end of last year, the Group's loss making Hong Kong precast subsidiary, Hong Leong Industries Manufacturing Limited, was finally closed.

In October 2000, the Group announced its investment of $15 million in a 50-50 joint venture with Lion Teck Chiang Limited to become one of the world's leading customized cut-and-bend rebar fabricators for the construction industry. This new initiative will complement the Company's existing business as a distributor of rebar products for NatSteel Limited

PROSPECTS
The Singapore construction industry continues to lag behind other sectors of the Singapore economy and in fact has not recovered since the Asian financial crisis. The significant over-capacity in cement, ready-mix and precast concrete and granite aggregate has not been reduced. This over-capacity will continue to hamper industry recovery.

The Building and Construction Authority (BCA) forecasts a very modest improvement in 2001 with a further upturn in 2002. However, industry experience is that the volume of work executed in any given year would generally equate to the value of contracts awarded in the preceding year because of the lag time between award and the actual commencement of contract. According to the BCA, while non-reclamation construction contracts awards in 2000 declined by 10.1%, the number of contract awards is anticipated to rise by 32% in the year 2001.

It is also heartening to note that prices for some construction materials have finally started to rise towards the end of 2000, as companies are beginning to realize that survival in the downturn will not be won by heavy price discounting. The impact of the gradually firming prices will be felt from the second half of 2001.

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