Chairman's Statement

Extracted from Annual Report 2006

The year 2007 has been different than the past years. It has been an eventful and challenging year. There were unprecedented increases in talent and technology costs. Customer demands grew for quicker implementation, talent became scarce and the US dollar continued to weaken. Your company met these challenges head on with the support of some of the most passionate employees in the company and a very committed Board of Directors whom I am very proud to have as my colleagues.

Despite all the uncertainties in the global economy and the challenges in the technology space, we exceeded last year's performance.

The global economy has been very dynamic and we have had to be aware of changes on a continuous basis. While this opened up many opportunities for your company, we have also been at the centre of massive change fuelled by globalisation. This has required us to be nimble and adapt to the changing market needs. To cope with this massive change, we had to take some significant actions not only to seize future opportunities but also to retain our competitiveness.

To understand how these challenges and customer's expectations were met, let me describe what your company did. I will outline briefly the actions taken before detailing them in the next few pages.

TECHNOLOGY

Several challenges in the technology space have emerged as a result of the global dynamic economy. Major corporations have competed fiercely with one another to change and dominate the software landscape.

Firstly, Microsoft continued to pioneer the .NET Framework which is being used to create your company's flagship product HRDPower™. The framework is a development and execution environment that allows different programming languages and libraries to work together seamlessly to create web-based applications that are easier to build, manage, deploy, and integrate with other networked systems. It is built on Web service standards. It also enables both new and existing personal and business applications to connect with software and services across platforms, applications, and programming languages. These connections give users access to key information, whenever and wherever you need it. With Microsoft .net–connected software, it makes the "real-time" enterprise real by enabling information to flow freely throughout the organization, accessible to business partners, and delivering value to customers. With .NET-connected software, users can increase the value of existing systems and seamlessly extend those systems to partners, suppliers, and customers. However the challenge of being closely aligned with the framework means we have to continue to stay technologically relevant by upgrading our product with continuous updates. Microsoft in a short span of time has moved from .NET framework 1.0 to 3.5. Hence the price of staying relevant and current in this challenging environment is a nonstop focus on R & D and getting the product ready to market faster than competition. The way around this challange has been to create a high value product with a strong brand supported by consulting and service excellence. The product supports community creation like plug-in developers for dashboard and consultants for library development. That is one way proprietary products are overcoming the challange of open source.

Secondly, open source software has continued to challenge proprietary software more in 2007 than in the past. News has it that IBM plans to challenge the Microsoft dominance of personal computing software with the release of IMB Lotus symphony. This trend will continue to increase with corporations wanting to add value with technology but at the same time nervous about huge expenditures on proprietary software. Your company's flagship product HRDPower™ is a proprietary product. The way around this challenge has been to create a high value product with a strong brand supported by consulting and service excellence. Your company has done that in 2007 by allocating more resources.

Thirdly, there has been a surge for on-demand software which is about the delivery of application software over the internet on a paid-subscription basis. This simply means there is no need to install software. Companies have seen this as hassle free and less investment heavy. While the market is still heavily dominated by installed application vendors such as SAP and Oracle, less than 10% of the market share is with on demand software vendors. The future seems to be with on demand software. On demand software leaders such as Sales Force.com and Success Factors have been huge successes globally. According to a Gartner study, businesses are expected to spend about US$ 500 million on using software on demand. While we have focused heavily on HRDPower™ as an installed application we have started to invest in building on demand software for the strategic HR space in 2007. With this initiative, your company will be able to increase recurrent revenue rather than depend on new business revenue all the time.

Talent Management

While the talent crunch has been most severe with wages rising and productivity and levels of competency lagging, we have had to attract, train and retain top talent to stay competitive. This caused the delivery costs to escalate well beyond expectations. This coupled with technological changes and the economic turmoil caused by the continuing weakening of the US dollar has been challenging for your company. We have continued to address the talent issue vigorously. Succession planning has been given special emphasis and a second line is in place to ensure your company performs as expected. This organisational strengthening process has been designed to ensure a talented pipeline of successors to our key executives.

Market Development

The need to revisit our marketing approach has become essential to address customer's needs. Latest major ventures and market penetration into USA and Europe have made us aware us with new customer demands for the need to have test sites or pilot sites at 'potential' customer's location while awaiting confirmation of orders thus incurring more pre marketing and development cost.

Overseas markets have demanded more sophisticated packaging and your company has embarked upon such an initiative.

The focus on USA and Middle East continues to be your company's ultimate focus. Due to resource constraints both in terms of funding and human capital and the encouraging demand from local companies, your company has had higher sales growth locally as compared to overseas. This has reduced profit margins significantly.

Customer Centric Operations

In 2007, we have successfully reengineered and transformed the business divisions into individual Enterprise Business Units. Units operating as specific companies were able to deal with changing customer needs much more rapidly. The key performance indicators (KPI's) were made clear and overlapping of priorities that could hinder growth identified and removed. We reinvented and realigned our resources to deliver great products, great customer experiences and great business results for our customers.

Support

All of these actions were possible because of a very committed Board of Directors. The Management team was extremely fortunate to receive support from a highly effective and capable Board of Directors who had a strong ability to provide direction and support. This allowed your Group to remain competitive and meet the challenges in 2007.

In May 2008, we successfully persuaded two new Independent Directors to join the Board with a view to strengthen our Corporate Governance and CSR initiatives, Mr. Venkiteswaran Sankar, a Chartered Accountant and Dato' Veerasingam Suppiah, a former Deputy Minister with the Government of Malaysia. Each of them has more than 30 years of experience in their area of expertise. We are highly indebted to our loyal shareholders for entrusting us with the confidence and support that was vital for success. Let me now move into the details:

Research & Development (R & D)

We focused more on research & development by realigning our resources to meet the emerging business challenges caused by the dynamic global economy. Changing customer expectations to meet new business realities required new responses. Throughout the year, we maintained our focus on Research & Development to enable our flagship product and platform HRDPower™ to keep pace with technological innovations in the market.

With organisations needing to be more efficient to grow in the dynamic global environment, there were more opportunities for products and services in the strategic HR space. While we recognised there were many players in the transactional HR market such as the payroll vendors, we kept our focus on being a niche player in the strategic HR space. We continued to work in this space as a high value provider.

We also focused on making the business scalable and generate more non linear income such as recurrent income with a focus on services such as on line learning, consulting and outsourcing. As the Group's market consists of mainly medium to large companies, factors such as data security, technology relevance, keeping up with market trends and requirements such as speed, robustness, capacity and dependability are critical. Continuous R & D is essential for the marketability of the Group's products and services.

As such, the Group's R & D scope is to constantly challenge and bring forth creative ways to effectively strengthen the performance of its existing products and services, i.e. HRDPower™ while simultaneously developing new services, particularly in eLearning and Mobile Learning. These new services will be integrated into the extended suite of HRDPower™. This will allow customers to leverage on the same robust platform of HRDPower™.

During FYE 2007, the Group has invested more than RM5.4 million on its R & D towards continuing and pioneering R & D efforts of the Group to remain niched and competitive. A major part of the investments was towards upgrading the existing products to remain relevant in line with the new technological efforts of Microsoft such as the Microsoft dot net framework 2.0 and Web 2.0 tools. Moving forward, the company will continue to reinvest at least 20% of its profits in R & D that will continue to result in the commercialisation of innovative products required by customers.

Launch of New Products in 2007 and Future Launches

Other products launched prior to 2007 includes HRDPower Access, Training Power, HRDPower SQL Server, HRDPower.net and HRD Webvarsity.

Apart from product development, the Company has also developed in-house tools to increase its efficiencies including e-Assessment tools, patch enhancements and development of all websites of the Group.

The company selected under Bursa's IRIP (Investor Relations Incentive Program) programme, has also benefited from the grant awarded and has been actively working with the Bursa appointed external professional consultants, to upgrade and create a more effective Investor Relations website.

Installation and upgrading of web server, data management system, customer relation management systems, web-based management tools and accounting system to improve communications and efficiencies have been completed for the year.

Details of R&D cost is as follows :-

R & D Exp for 2007 (RM)	5,445,813
Profit After Tax (RM)	6,254,458
% R & D / PAT	87%
Number of R & D Personnel	21
Total number of Staff	45
% R & D / Total Staff	47%

The Board of Directors of SMRT Group are of the view that the allocation for R & D is in the normal course of business which will not have any major financial impact on the Group as it has to keep abreast with technology and market demands.

Upon completion, the Group's R&D activities are expected to result in the enhancement of the Group's products and expansion in the Group's product portfolio offered to new and existing customers. This is expected to contribute positively to the Group's future earnings.

Financial Performance

In the year 2007, the Group's financial performance improved with a profit after tax ("PAT") of RM6.3million, an increase of approximately 9% against a RM5.7 million PAT in 2006. Turnover increased by 56% from RM12.1 million in 2006 to RM19 million in 2007.

The strong revenue growth was mainly attributed to high demand of our products and services in Malaysia which effectively contributed RM9.3 million, or 48.8% to the group revenue in the year under review, while the balance of 51.2% came from our overseas operations.

HRDPower™ and its related products continue to be the main contributor to the revenue effectively contributing to 81.5 % with Consulting and Outsourcing services contributing a significant growth of 18.5% against the total revenue.

Revenue

Profit After Tax

Economic Review

After a robust economic growth in 2007, global growth is expected to moderate to 3.7% in 2008 (4.7% in 2007). While economic activity in the developed economies is expected to soften, the growth momentum is expected to remain strong in Asia and other emerging economies. The global growth outlook would depend critically on the length and depth of the US slowdown and its impact on the global economy, as well as the extent of the impact from large scale financial market disintermediation on the rest of the world.

Inflation is expected to remain elevated following sustained high commodity and food prices. While these developments will have a dampening impact on the Asian regional economies, the growth in the Asian regions will continue to be supported by strong domestic demand and the strong growth momentum in the large emerging economies in the region, particularly China and India. The high commodity prices will provide additional impetus for growth in several commodity-producing economies.

The outlook for the Malaysian economy in 2008 remains favourable with GDP projected to expand by 5-6% in 2008. Domestic demand is expected to remain resilient, providing strong support to the economy. The major underlying factors supporting domestic private sector activities are expected to remain broadly intact in 2008. Private consumption will be supported by the steady growth in income, firm labour market conditions, high commodity prices as well as a conducive financing environment. The diversified and high levels of approved domestic and foreign direct investments for a number of years now, particularly in the manufacturing, services, and oil and gas sectors, indicate that private investment activity will remain robust in 2008. In addition, private investment will also benefit from measures implemented to further improve business environment, including the reduction in corporate tax rate, as well as intensification of implementation of projects under 9MP and the economic corridors. The public sector will continue to remain supportive of growth in facilitating the efficient implementation of these projects. In terms of domestic inflation outlook, the average headline inflation rate for 2008 is expected to be in the range of 2.5% to 3.0%, with risks remaining on the upside and emanating from external price pressures.

There remains a considerable uncertainty concerning global commodity and food prices. Global crude oil prices have remained elevated. Although domestic fuel prices are partly subsidised by the Government, the extent of high global crude oil prices feeding through the supply chain of other imported inputs and ultimately into consumer prices needs to be closely monitored.
(Source: Bank Negara Malaysia Annual Report 2007)

Industry Trends & Development

The Group is principally involved in software development, specialising in human capital development and the provision of a comprehensive range of human resource ("HR") competency and performance management systems and related services. Growth prospects for the Malaysian economy remain favourable in 2007, despite uncertainty in the global economic environment. Strong domestic economic fundamentals will enable the economy to grow at 6.0% in 2007 (2006: 5.9%). The services sector is envisaged to contribute significantly to real gross domestic product (GDP) growth, led by robust household spending and buoyant business activity. Value added of all sectors in the economy is expected to record positive growth, led by the services sector. In 2007, the services sector is expected to register solid growth of 9.0% (2006: 7.2%), exceeding the overall expansion of the economy. All sectors of the economy are expected to register steady growth in 2008, led by services, reinforced by faster pace in construction activities as well as high global electronics demand. The services sector is forecast to sustain solid growth at 8.6% (2007: 9.0%) with favourable performance across all sub-sectors. In addition, real estate and business services as well as finance and insurance subsectors are expected to benefit mainly from increased property transactions and continued expansion in the demand for IT-related and financial services.
(Source: Ministry of Finance Malaysia, Economic Report 2007/2008, 7 September 2007)

During the Eight Malaysian Plan period, Malaysia made significant progress in increasing the information and knowledge content in all sectors of the economy as well as ensuring that the ensuing benefits accrued to all segments of society including the rural communities. In moving forward towards a knowledge-based economy, the country will leverage on the networked environment alongside the next wave of the Multimedia Super Corridor (MSC) expansion including the development of cyber cities and where feasible, cyber centers. This is with a view to harnessing information, communication and technology as a new source of growth and wealth creation, and sustaining Malaysia's position as a competitive global multimedia hub destination particularly in shared services and outsourcing. Further initiatives will be undertaken to attract investments in existing and new areas. These will include provision of improved incentives, review of investment-related laws and regulations, with a view to provide a more conducive environment for investment as well as making available adequate funding.
(Source: The Economic Planning Unit, Prime Minister's Department, Ninth Malaysia Plan 2006-2010, 31 March 2006)

As concerted efforts continue to be undertaken by the Malaysian Government to strengthen the foundation for a knowledge-based economy, the greater adoption and usage of Information and Communications Technology ("ICT") will become strategically more important. The country will need to increasingly harness ICT to improve productivity and competitiveness as well as progress to high value added and knowledge intensive economic activities. The Government will build upon and enhance ICT capacity for ubiquitous access, develop core competencies, narrow the digital divide, and expand usage of electronic transactions as part of the overall effort to empower the populace to partake in the growing networked economy. Simultaneously, this will allow for the greater expansion of ICT-related industries and services.

During the 9MP, the Government will continue to focus toward providing and encouraging the wider use of knowledge based and performance management systems as an alternative way of promoting talent management and lifelong learning. While the Government will continue to play a catalytic role in promoting a knowledge and performance based economy, the private sector and in particular the industry associations will be encouraged to spearhead initiatives, leveraging on the existing networked environment to access online learning opportunities as well as improve effectiveness and efficiency of talent management along the supply chain, including Human Resource Development and Human Resource Management. These initiatives are expected to pave the way for Knowledge and Competency Management Systems to be a major driver in the K-economy, while at the same time generating new and innovative business opportunities.

Measures are also undertaken by Government to enhance ICT-related skills and competencies as well as infostructure expansion for improved broadband connections for advanced multimedia applications, local content development, greater e-commerce adoption and improved information security.
(Source: Ninth Malaysia Plan 2006-2010)

Corporate Social Responsibility

Our Group has always been mindful of benchmarking ourselves with the principles and best practices as set out in the Corporate Social Responsibility (CSR) perspective.

Our Group has been successful in convincing our technically advanced Human Resource Professionals in our communities to increase investment and in transferring higher value-added training and HR technologies to Malaysia, in helping to develop more talent in Human Resource Management and Development.

In terms of CSR initiatives, SMRT is a new player in the Malaysian scene but one with a big dream. It intends to spend RM 1 million over the next 3 years both in terms of offering its services to the social sector for free and in actual allocation of funds, all in the effort to strengthen the Malaysian community's social capital. Some of the efforts are also expected to benefit the regional and global communities.

This SMRT has offered two bursaries for students pursuing tertiary courses in Malaysian institutes of higher learning. With the intention to benefit the HRD community, this year we offered an important SMR HRD event, Trainers Meet Trainers (TMT), without cost to 162 Malaysian HRD professionals and trainers. We also offered as free service, Training Needs Analysis (TNA) to 13 decision- makers from 8 Malaysian business organisations. For a number of the SMR public HRD events, we offered a number of persons from the social sector free entry as part of our CSR initiative.

One of our executive directors is directly involved in the social sector on a voluntary basis, contributing his time and labour in the area of social communication for sustainable development and peace.

The CSR efforts of SMRT are governed by a policy and an activity orientation plan. The policy governs SMRT's business orientation, which is governed and enabled by our concerns for the general community, local and global ecology, workers health, and workers (human) rights. This is mentioned in our policy preamble.

SMRT, as members of the business community, recognises its Corporate Social Responsibility and its responsibility towards building social capital. It is committed to its various stakeholders particularly in Malaysia but also regionally and globally. The stakeholders include customers, shareholders, investors, vendors, partners, consultants, insurers, academics, and employers. We are progressively committed to adopting various standards of socially-oriented corporate behavior. We are committed to people development by enabling their learning and performance. We are also committed to help the needy and the poor in our community by enabling them to be selfsufficient. Finally, we are certainly committed to the local and global ecologies.

We have established our guiding principles and orientations to evolve a positive CSR organisational culture and we like to relate to those like our vendors and suppliers, who also follow such principles and practices.

SMRT's CSR activity orientation plan covers interventions ranging from helping those involved in tragedies from natural disasters, welfare, educational institutions (in the areas of fun, competency and performance), ecology and community outreach. In relation to welfare, three wheelchairs have been earmarked to be distributed to the physically-challenged. In the first phase, this will be people from the Klang valley. SMR Staff (under the leadership of the Caring Committee) have planned one fun activity programme at an orphanage for this year. In addition, the committee has been involved, and continues to be involved, in promoting activities that encourages a healthy working environment. Staff development in terms of relevant training for enhancement of their competencies and emotional intelligence is an integral part of our CSR strategy.

As a step towards community outreach activities, this year there will be three workshops held for about 300 pre-school teachers from various places in Malaysia offering them the FUN methodology (developed by SMR) so that it can be actively used in their teaching. This exercise will be done in partnership with other organisations that are working with pre-school teachers both in the private as well as the public sectors.

As a step towards working with educational institutions in the areas of adult learning, competency and performance, we have established, through our CSR programme, a MOU with educational institutions. Under our internship programme, we have received trainees from educational institutions for training in HRD-related areas. To date we have offered training experience to 7 young Malaysians.

SMRT hopes to work in all the areas mentioned above in an organised and systematic manner so that there is the growth of social capital, which it hopes will benefit all Malaysians. And others in this region and other regions.

Education Programmes

Tertiary Education
Greater access to tertiary education will be provided to achieve the target of 40 per cent participation rate of the age group 17-23 years in 2010. Enrolment at the post-graduate level will be expanded to meet the target of 25 per cent of the total enrolment at degree levels in 2010. A special programme will be implemented to increase the enrolment of post-graduate students, particularly in Science and Technology programmes.

Enhancing Quality
Measures will be undertaken to enhance the quality of public and private institutions of higher education to be at par with world renowned universities. Towards this end, the quality of institutions of higher education will be benchmarked against international standards to enable these institutions to become globally competitive. Institutions of higher education will design their academic programmes and develop their curricular based on market requirement to ensure the employability of graduates. The requirement of competent workforce and lecturers in these areas will be highly required.

Developing Regional Center of Excellence for Education and Training
Efforts will be intensified to develop Malaysia into a regional center for excellence in education and training through smart publicprivate partnership. A dedicated agency will be established to promote and export higher education through more strategic marketing and branding of educational products in order to attract a target of 100,000 foreign students at all levels including the school level by 2010.
(Source: Chapter 11, 9th Malaysia Plan)

Accelerating Lifelong Learning
The implementation of lifelong learning programmes will be accelerated to enable all segments of society to continuously learn and acquire knowledge and skills. Lifelong learning infrastructure such as corporate universities and community colleges will be expanded and upgraded. In addition, e learning and distance education will be further promoted to increase accessibility.

Corporate Development

Reinvention and innovation were the key themes that were instilled in our people and our products for 2007. With the aim to increase business focus and to better serve our growing businesses, we embarked on several initiatives to set-up the following companies for the year:-

Going forward, the Group continues to identify potential companies for possible acquisitions in related business areas to create synergistic value to the Group.

SMR HR Technologies Sdn Bhd (SMRHRT)

SMRHRT again proved to be the main contributor for the group in expanding its business portfolio with both existing as well as new customers. The company registered a strong year in terms of profitability. The company contributed RM15.5M in revenue and R6.4M in profitability or 84% and 103% respectively against the total group revenue and profits. The amount is nett of intercompany transactions.

The company continues to grow in profitability and revenue in line with the group's expansion plans. The application of a business unit concept to individual product lines has enabled a stronger focus on areas such as yield, cost and productivity. This led to higher profitability for the Company as whole. New human capital initiatives were implemented to help our customers maintain their cost advantage and competiveness. SMRHRT also added substantial Research and Development expenditure into its core product upgrade to remain relevant and niche in Year 2007.

Our strategy to expand our operations into the USA, Europe and Middle East region has resulted in substantial business expansion and investment over the past year. The biggest obstacle to growth is not in securing new or maintaining existing business but in fulfillment and implementation. The Talent scarcity globally has made it very difficult to hire the right people. This simply meant we had to hire and train talent before they could be deployed. This has costed the company in terms of time and money. However we are positive this strategy will pay off in the long term.

SMRHRT's strength lies in its ability to exceed customers' expectations in terms of delivery, pricing and proactively anticipating their needs. This has resulted in new businesses from existing products as well as from new products. Your board has also given significant support with the approval of more than RM5 million for CAPEX and Human Resource Expansion. This has enabled the expansion of new businesses.

We are very proud of the passion and dedication shown by the SMRHRT employees and would like to take this opportunity to thank them for the wonderful job done in Year 2007!

SMR HR Services Sdn Bhd

This company was set-up to focus in the areas of HR consulting and outsourcing. In 2007, in its maiden year, it has successfully contributed RM1.9M in revenue and RM0.6M in profitability to the group. It constitutes 10.4% and 9.5% respectively against the total group revenue and profits.

We expect this company to grow more rapidly in 2008 in view of the vast potential and global demand for HR consulting services and outsourcing of HRD services.

SMR USA Inc (SMRUSA) and Smartha Inc (SMARTHA)

Both these companies that focus in the US market are starting to show favourable signs of market penetration. SMRUSA, wholly-owned by the group which focuses more on consulting related revenue contributed RM1.4M to the group's revenue and RM0.06M to the group's profitability in 2007.

While SMARTHA a joint venture, is focusing in pushing our technology products, 2007 remains to be a year of further test marketing and market awareness.

In 2007, SMARTHA did not contribute to any revenue or profits. On the positive note there is no capital outlay in this venture except for future investment in test marketing and the creation of test/pilot sites for potential customers.

We expect both of these ventures to contribute positively in 2008 despite the expected slowdown of the US economy. Barring any unforeseen circumstances, the Group expects to continue to operate profitably in the ensuing year.

Future Prospects

In just 6 years of our venture into the global HR technology sector, we have run a successful and profitable operation. We have consistently transformed ourselves in a proactive manner by investing strategically and by anticipating our customers' needs. We have always strived to position the company to maximise opportunities arising from global trends.

Scaling a business successfully in a globalised world will require talent. The challenge of retaining and attracting talent will be critical for a business. We strongly believe that talent will be the critical differentiator for business success and technology will play a central element in human capital development and the world economy.

Strategic HR elements such as Talent Management, Succession Planning and Competency Management will drive the execution capabilities of organisations.

Our challenge is to stay connected with the trends in the HR vertical and the cutting edge technologies. We strongly believe our R&D initiatives are moving in the right direction. Your company will be ready with the products to meet the challenges of the future. While we continue to focus on strategic HR elements, we are also venturing into the exciting growth areas of e-learning and mobile learning. Our ability to connect with major customers in high growth industries worldwide is a key factor in maintaining our growth trajectory in the future.. We are confident that our strong focus on building our own talent by developing our implementation capabilities and proactive customer service mindset will continue to offer us growth opportunities and profitability in the years ahead. In 2008, the Group will continue to focus on its key business activities as demand for HRDPower™ is expected to grow due to the rollout of the 9th Malaysia Plan.

The Group intends to expand its overseas market by venturing further into the GCC countries in the Middle East, Indonesia and Singapore. The Group is currently in the progress of setting up an office with local partners in Bahrain and UAE. When the joint business commences, it is expected to contribute to the revenue and earnings of the Group. We are also optimistic that we will be able to consolidate our business in the US despite the possible business downturn there.

Going forward, the Group is planning to explore business opportunities in Europe to establish new customer bases as there are prospects to increase the sale of HRDPower™ in the hospitality and health care sectors.

The Board of Directors of SMRTech Group is optimistic of the future growth and prospects of the Group for the financial year ending 31 December 2008.

Acknowledgements

On behalf of the Board of Directors, I wish to express our sincere appreciation and gratitude to:

In closing, I would like to personally thank my fellow Directors for their dedication and excellent commitment throughout the years. I look forward to a successful 2008 for all of us.

Thank you.

R. Palan Ph.D., A.P.T.
Group Chairman and CEO