Dear Shareholders

2008 began with much enthusiasm and excitement as we looked to build on the significant growth momentum from our Automotive and Data Storage sectors from the previous year.

The speed that the US sub-prime mortgage crisis has evolved into a worldwide economic slowdown has put a damper on the Group's initial optimism. It seems no one has been left unaffected by the ongoing crisis as once impregnable MNCs are recording losses for the first time in decades. Armstrong was no exception with the Group experiencing its first decline in revenue after seven and a half years of consecutive growth.

In spite of these events, Armstrong Group managed to maintain revenue of $182.4 million. However, profit margin declined from 9.6% to 7.2% as a result of currency exchange losses as well as new start-up losses in Thailand, including operating cost affected by higher energy costs. Gross profit declined slightly to $49.2 million and profit attributable to shareholders was $13.1 million.

PERFORMANCE REVIEW

Our Automotive and Data Storage sectors continue to be bright spots in our business, with projects being executed in a timely manner. The recent political instability in Thailand caused some projects to be held back accounting for 30% of the projected fourth quarter revenue.

The Group was also affected by a 4% decline in our electronics sector, mainly from a slowdown in exports for notebooks. If not for this decline, the Group would have registered a marginal growth as all other operations exceeded their projected targets.

Efforts to expand our rubber production capacity have also started to bear fruit, as revenue for our rubber business hit a record high contributing much more significantly to the Group's total revenue.

BUSINESS OUTLOOK

Taking into account the current business environment, we are projecting a more cautious outlook for 2009. However, with the securing of several key accounts for new Automotive products and an increase in high-end products for LCD modules, we are confident that the business will remain moderately stable in the coming quarters. While we do not foresee an exceptional growth rate in the near future, we remain committed to working closely with our customers, to ensure we will be able to recover quickly when the markets do turn.

We will also undertake a much more proactive stance as we seek to navigate through the challenging business environment. For that we have been busy reworking corporate strategies and targets, continuously reviewing our cost structure to ensure we remain operationally flexible to meet changing market conditions. Indeed, measures to conserve cash, protect our profit, reduce our risks and costs remain at the top of the Group's priorities.

Moving forward, we hope the opportunity to enhance overall risk and cost management and system improvement will ensure that Armstrong emerges from the crisis a leaner and stronger business unit.

DIVIDENDS

As a demonstration of confidence in Armstrong's strength and future, the Board of Directors is pleased to propose a dividend payout of 1.0 cent per share, utilising up to 38.1% of the profits earned in 2008. Based on the share price of 12 cents, the payout translates to a dividend yield of 8.3%.

ACKNOWLEDGEMENT

To our Directors, Management and Staff, I wish to thank them for their commitment, teamwork, guidance and advice. Thank you to our customers for their continuous support and our business partners and shareholders for their ongoing support.

Gilbert Ong
Chairman and Chief Executive Officer
Armstrong Industrial Corporation Limited