I look forward to working with our stakeholders in FY2018 as the Group prepares itself for the gradual but steady ascent to the top after having weathered
the worst of headwinds in the past few years.

DEAR SHAREHOLDERS,
2017 was a good year for the global economy, despite worries about the trade policies of the Trump administration in the United States.

Global output grew by 3.7% in 2017, compared to 3.2% in 2016, according to the International Monetary Fund (IMF). The strong showing was driven by increased activity in Europe, Japan, China and the United States.

Amidst the positive economic data, YHI International Limited (“YHI” or “the Group”) posted its best performance in three years for the financial year ended 31 December 2017 (FY2017), even as we continued to be buffeted by cyclical headwinds that continued to blow within the industry.

FY2017 saw the Group posting a net profit of $8.8 million, after tax and non-controlling interests attributable to shareholders of the Company - an increase of 136.9% from $3.7 million in FY2016. This was our best showing since 2013, when we posted a net profit of $8.8 million.

The rise in net profit is a testament to the fact that we are on the right track with our consolidation and transformation efforts -- embodied by our “3R” policy which was first implemented in 2014.

The policy entails all our business units to focus on 3Rs -- reduce inventory, reduce account receivables, reduce operating costs. In the initial stages, we focused our efforts on reducing inventory by clearing old stock and curbing excessive purchases to bring the overall stock-holding to below three months’ projected sales. We also strove to improve our collection methods to reduce account receivables to healthier levels.

Since 2016, we have devoted our energies to the last but certainly not least of the 3Rs -- reducing our operating costs, right-sizing businesses to align operations with sales, and eliminating non-profit-making assets like our factory in Shanghai.

Four years into its implementation, the 3R policy has helped the Group to reduce excess capacity, optimise our resources and reduce wastage. As such, despite the challenging operating environment, we firmly believe that our strong fundamentals will help us to achieve not only continued and sustainable growth but also deliver stable returns to our
shareholders.

FINANCIAL PERFORMANCE REVIEW
The Group posted revenue of $442.9 million and net profit attributable to equity holders of the Company (“net profit”) of $8.8 million in FY2017, representing a year-on-year decrease of 4.9% in revenue and a 136.9% increase in net profit respectively as compared to FY2016.

The decrease in revenue was mainly due to lower sales in the manufacturing business, while the increase in net profit was aided by the positive contribution from all 3 wheel factories and the complete cessation of our wheel manufacturing operations in Shanghai.

Our gross profit increased by 3.4% to $103.8 million compared to last year. Our gross profit margin also rose to 23.4% compared to 21.6% in FY2016, thanks to higher gross profit margins from both our distribution and manufacturing businesses.

The distribution business remained the main contributor to the Group’s revenue, constituting 72.8% of the total turnover. Reflecting the overall decrease in revenue, the distribution business posted sales of $322.4 million, 0.4% lower than the same period last year.

Our tyre distribution business continued to be affected by weak market demand and oversupply of tyres, which resulted in intense price pressures. The oversupply has led to price competition and further margin erosion.

Despite the difficult conditions, our distribution business has managed to moderate their impact through sales of different product mix and rigorous cost control measures.

The Group’s wheel manufacturing business registered sales of $120.5 million, a 15.0% decrease in turnover mainly due to cessation of operation in Shanghai despite higher sales recorded by Suzhou, Malaysia and Taiwan factories. However, we are confident that the consolidation exercise that we have embarked on in the past few years in Malaysia and then China will help our wheel manufacturing business to weather the tough operating environment.

In FY2017, we completed our plans to move the production capacity of our Shanghai factory, including machinery, to our facilities in Suzhou and Malaysia. The restructuring costs related to the cessation of operations in Shanghai, such as retrenchment, impairment of machines, as well as repair and maintenance of the Shanghai factory, had partly impacted the overall profitability of the wheel manufacturing business.

With our mould and wheel manufacturing operations in China now centred just in Suzhou, we expect savings in rental and fixed overhead costs, as well as increased efficiency, to have a positive impact on future profit.

As we continue to right-size our operations in line with changing market and industry demands, we are confident that these measures will help us to strengthen our balance sheet and provide us with the resources needed as we seek new growth opportunities and markets.

KEEPING OUR BALANCE SHEET STRONG
With our 3R policy helping us to manage costs effectively, the Group’s balance sheet remained in a healthy state.

As at 31 December 2017, we generated total net cash flow of $22.7 million from operating activities, with cash and cash equivalents amounting to $54.0 million. Total assets stood at $387.5 million, with $260.9 million in net assets attributable to shareholders, translating to a net asset value per share of 84.88 cents per share based on the 292.3 million shares in
issue. The Group’s net gearing ratio was at an acceptable 12.5% as at 31 December 2017.

RETURNING VALUE TO SHAREHOLDERS
Despite the challenging environment, the Board is recommending a first and final tax-exempt cash dividend of $1.50 cents per ordinary share for FY2017, subject to approval at our annual general meeting to be held on 26 April 2018.

This represents a dividend yield of 3.2% based on the share price closing of $0.47 as at 31 December 2017 and a dividend payout of 50% of our profit. Our distribution of the dividend is not only a reflection of our commitment to returning value to shareholders but also a recognition of their strong support and belief in YHI.

OUTLOOK AND FORWARD STRATEGY
Global sentiments for 2018 have become more upbeat, with the IMF expecting global economic growth to accelerate to 3.9% this year, driven by improvement in advanced economies.

However, there are risks on the horizon, namely the prospect of a global trade war following President Donald Trump’s announcement in March to impose tariffs of 25% and 10% on imported steel and aluminium respectively. The Trump move has sparked fears that other countries would retaliate by imposing their own tariffs to prevent cheap steel being
diverted from the US market into theirs.

Other concerns include possible tensions in the Middle East crippling global energy markets, and an economic downturn in China. While the Chinese government has set its GDP growth target at around 6.5 % for 2018, economists noted that its plans to tighten controls on local government debt, and trade tensions with US, may undermine the strong
growth China had registered in the first few months of the year.

Such downside risks aside, YHI expects the overall business operating environment to remain challenging, given the intense competition we face in the regions we operate.

We expect intense price competition to continue in 2018 due to the prevailing overcapacity in the tyre industry. However, we are hopeful that the industry is about to turn the corner. As China’s economic restructuring efforts proceed apace, which will lead to the closure of thousands of inefficient manufacturing plants, the problem of oversupply in the tyre industry is likely be contained in the near future.

In 2018, we plan to increase our focus on ASEAN, namely Malaysia, Indonesia and the Philippines.

Malaysia, which is currently our No.1 market, has reaped benefits from the consolidation exercise that saw the moving of our operations from Sepang to Malacca in 2015. Our
Malacca operations are now among the best performing within the Group, thanks to the enhanced efficiencies arising from the streamlining of our operations and the leveraging of greater synergies from operating only one manufacturing facility. We plan to further strengthen our presence in the country — where the markets for tyres and power products are expected to see strong growth in the near future on the back of rising demand for vehicles and increasing purchasing power of consumers — via our subsidiaries, YHI Power (Malaysia) Sdn Bhd, and the newly incorporated YHI Logistics (Malaysia) Sdn Bhd.

YHI Power, incorporated in 2016, handles the export of power products into Malaysia, while YHI Logistics, which was incorporated in January 2018, will focus on the provision of logistics services there.

With its growing middle class and an economy that is expected to grow 5.4 percent in 2018, Indonesia remains a market with strong growth potential for the Group despite some challenges.

For 2018, we also plan to step up our 3M marketing strategy — multiproduct, multi-brand and multi-category — in Indonesia, such as developing new sales channels for our tyres, focusing on the premium wheels brand segment, and extending our industrial battery business into non-golf markets.

Following a joint venture agreement signed in October 2017, we will have a stronger foothold in Myanmar from 2018. Our local partner is Aung San Company, a private firm dealing with the import of car products such as wheels, tyres, accessories, spare parts and general merchandise.

The new joint venture company, YHI Aung (Myanmar) Company Limited, will develop and establish the marketing business of car and industrial products in Myanmar

Australia, whose economy has been affected by falling commodity prices, is also another promising market this year, given that the prices of raw materials had been on an upward trend in recent months. According to an OECD forecast, the Australian economy is likely to grow by 3% in 2018, compared to 2.4% in 2017. The improving economy has led to an
uptick in consumer spending, as reflected by the strong sales of new vehicles in recent months.

However, we expect high raw material prices and a weak US dollar to impact the margins of our manufacturing business, given that aluminium is a key component of our wheel manufacturing business.

While we will continue to maintain a presence in China, a country we ventured into 25 years ago, all of our wheel manufacturing operations are now consolidated in one city, Suzhou, following the closure of our Shanghai facility. We expect rental income contribution from the Shanghai factory to have a positive impact on future profit.

Despite our scaled-down presence in China -- where labour and operations costs have been rising in recent years -- we are confident that we will continue to make our mark in the country by leveraging on the brands and quality of our products.

No matter which way the economic winds will blow in 2018, the Group will continue to strengthen our internal processes and mechanisms to ensure that we will not be caught flat-footed.

Back in 2014, we began focusing our energies into implementing the 3Rs across our business to meet the challenges arising from external factors as well as keeping pace with the vagaries of the business landscape. The main concern then was to reduce operating costs through restructuring and right-sizing our businesses, and improving efficiency and productivity.

Since 2016, however, we have started to place greater emphasis on finding new sources of growth, even as we maintain our focus on reducing operating costs. This year, we will continue to pursue this twin strategy of pursuing growth in tandem with cost-controls with even greater zeal. This includes developing new business opportunities by increasing the reach and network of our distribution channels, and seeking synergistic joint ventures, partnerships or other forms of business tie-ups to widen our revenue stream and open up new markets to our products.

We will also continue to invest in research and development, to innovate and improve technical competencies, and harness technology to improve our production processes to bring down further production costs.

IN APPRECIATION
On behalf of our Board of Directors, I would like to express our appreciation to our customers and partners for their support during the year, and to the staff and management for their unwavering commitment and untiring efforts in helping the Group to navigate its way during these highly challenging times.

I am also grateful to our shareholders for their confidence and loyalty to the Group.

Last but not least, my deepest appreciation to the Board of Directors for their invaluable guidance and contribution during the year.

I look forward to working with our stakeholders in FY2018 as the Group prepares itself for the gradual but steady ascent to the top after having weathered the worst of headwinds in the past few years.

Richard Tay
Executive Chairman & Group Managing Director

亲爱的股东们,
2017年对全球经济而言是美好的一年,虽然对美国总统唐纳德•特朗普的贸易政策表示担忧。

根据国际货币基金组织( I M F ) 的数据,2017年全球产出增长3.7%,比较与2016年的增长率为3.2%。欧洲、日本、中国和美国的经济激增推动了全球增长。

尽管受到行业内那些不利因素的影响,友发国际有限公司(“友发”或“集团”)在2017年12月31日的财政年度业绩报告,创下这三年来最好的成绩。

2017年集团发布的净利润为8百80万新元,相比2016年的3百70万新元增加了136.9%,这是集团自2013年以来的最佳表现,当时的净利润为8百80万新元。

净利润的增长,证明我们的重组和转型策略已经步入正轨,这包括2014年首次实施的“3R”政策。

3R政策要求所有部门主管着重在降低库存,减少应收账款,降低运营成本。在最初阶段,我们通过清理旧库存和限制过度采购来降低库存,整体库存保持在三个月以下的预计销
售额。我们采用更积极的收款方式,将应收账款减少到更健康的水平。

自2016年以来,我们花了很多精力来达成3R政策的目标,如降低运营成本,调整业务规模,并结束非盈利的资产如上海工厂。

实施了四年的3R政策,帮助集团减少了产能过剩,优化资源和减少浪费。因此,尽管经营环境仍具挑战性,但我们坚实的基础将有助于我们不仅实现持续增长,而且能为我们的股东带来稳定的回报。

财务业绩回顾
2017年集团总销售额达到4亿4千2百90万新元,净利润为8百80万新元,比去年同期(2016年财政年度,截止到12月31日)的总销售额减少4.9%,但净利润则增长136.9%。

总销售额的减少主要是由于制造业的销售下降,而净利润的增加则得益于三家轮毂厂利润的贡献及上海轮毂厂的结束。

我们的毛利与去年同期相比增长了3.4%,达到1亿3百80万新元。我们的毛利率亦上升至23.4%,而2016年则为21.6%,我们的批发业务和制造业务都为此贡献了一份力。

批发业务仍然是本集团收入的主要来源, 占总营业额的72.8%。由于整体收入下滑,批发业务的销售额为3亿2千2百40万新元,比去年同期低了0.4%。

我们的轮胎批发业务继续受到轮胎供过于求的市场疲弱影响,导致价格面临巨大压力。供应过剩导致价格竞争和进一步的利润空间萎缩。

尽管困难重重,我们的批发业务通过销售不同的产品组合和严格的成本控制措施,缓和了市场环境带来的冲击和影响。

集团的轮毂制造业总销售为1亿2千50万新元,比较去年下降了15%。虽然苏州,马来西亚和台湾工厂今年取得较高的销售额,然而上海厂的结束导致制造业总销售额比去年来得低。但是我们有信心,过去几年来我们在马来西亚和中国进行的整合工作将有助于我们的轮毂制造业务渡过艰难的经营环境。

2017年,我们将上海工厂的机械设备移去了苏州和马来西亚工厂。重组成本,如裁员,机器减值准备以及上海工厂的维修和保养,部分影响了轮毂制造业务的整体盈利。

随着我们把中国的模具及轮毂制造业务集中在苏州,我们预计租金和固定间接成本的节省以及效率的提高将对未来的利润产生正面的影响。

为适应瞬息万变的市场和行业需求,我们不断调整业务规模。我们相信,这些措施将有助于我们加强资产负债表,并为我们提供所需资源,以便开拓新的增长机会和市场。

保持资产负债表强劲之势
我们的3R政策使我们有效地管理成本,因此集团的资产负债表仍然保持健康平稳的状态。

截至2017年12月31日,经营业务之总现金净额为2 千2百70万新元,现金及现金等价物达5千4百万新元。资产总额为3 亿8 千7百50万新元,归属于股东的净资产为2 亿6 千90万
新元,根据发行的2亿9千2百30万股股票,转化为每股净资产84.88分。集团的净资产负债率为12.5%在可接受范围内。

回馈股东
尽管市场环境充满挑战,董事会仍提出2017年派发首末期股息1.5 分每股,此提案会在2018年4 月26日的年度大会中商讨决议。

截至2017 年12 月31日股票收盘价为每股0.47 分,此股息收益率为3.2%,股息支付占集团总利润的50%。集团派发股息不仅反映了对股东回报的承诺,也为了回馈股东们对友发的支持和信任。

展望未来
随着经济体系的的改善,国际货币基金组织预计今年的全球经济增长将加速至3.9%,因此2018年全球环境变得更加乐观。

然而,在唐纳德•特朗普总统3月份宣布美国将对进口钢铁和铝征收25%和10%关税后,全球贸易战即将拉开帷幕。人们不得不担心其他国家会通过提高自家的关税来进行抵制。特朗普的举动引发了人们的担忧,其他国家会通过征收自己的关税来阻止廉价钢铁从美国市场转入他们的国家来进行报复。

其他问题包括中东可能出现的全球能源市场紧张局势和中国的经济低迷。尽管中国政府已将其2018 年GDP增长目标定在6.5%左右,但经济学家指出,加强地方政府债务的控制以及与美国贸易紧张局势可能会破坏中国的计划,特别在2018年头的几个月。

抛开这些风险不谈,我们运营地区也竞争激烈,预计友发整体业务运营环境仍然具有挑战性。

由于轮胎行业普遍存在产能过剩,我们预计激烈的价格竞争将在2018年继续。然而,我们对行业即将好转寄予希望。随着中国对经济结构调整迅速展开,导致成千上万经营不善的工厂将随之倒闭,在不久的将来,相信轮胎行业这种供过于求的问题会被控制。

2018年,我们计划把重点放在东南亚市场,包括马来西亚,印尼和菲律宾。

目前马来西亚是我们的主要市场,在2015年从雪邦厂迁移至马六甲的合并活动中,得到效率的提升。我们的马六甲工厂现已成为集团内表现最佳的公司之一,这归因于我们的业务精简和综合一家制造工厂带来更大协同效应。

通过我们的子公司Y H I P o w e r(Malaysia) Sdn Bhd)以及新设立的YHI Logistics (Malaysia) Sdn Bhd,我们计划进一步加强我们在该国的影响力 - 由于车辆需求和消费者购买力的增加,预计轮胎和电力产品市场在不久的将来会出现强劲增长。

YHI Power于2016 年成立,负责向马来西亚推广电力产品,而于2018年1月设立YHI Logistics将专注于提供物流服务。

随着中产阶级和经济的增长,预计2018 年会增长5.4%,尽管面临一些挑战,但印尼仍然是集团具有强劲增长潜力的市场。

2018年,我们还计划加强我们在印尼的3M营销策略- 多产品,多品牌和多类别- 例如开发新轮胎销售渠道,专注于优质轮毂品牌市场,并扩展我们的工业电池业务。

在2017年10月我们和缅甸合伙人签署的合资协议在当地设立公司,合作伙伴是Aung San Company。这是一家私营公司,负责进口汽车产品,如轮毂,轮胎,配件,零配件和一般商品。

新合资公司YHI Aung(Myanmar)Company Limited 将在缅甸开发和建立汽车和工业产品的营销业务。

由于商品价格下跌,澳大利亚的经济在过去几年里表现欠佳,不过今年也将是另一个前景看好的市场。根据经合组织预测,2018 年澳大利亚经济可能增长3%,而2017年为2.4%。经济改善导致消费者支出增加,反映近几个月新车销量强劲。

鉴于铝锭是我们车轮制造业务的主要生产物料,我们预计原材料价格提高以及美元疲软将影响我们制造业务的利润率。

然而我们不会放弃中国市场,在25年前我们就在中国进行投资。结束上海工厂后,我们将所有的轮毂制造业务合并在苏州。我们预计上海工厂的租金收入将会提高未来的利润。

尽管我们在中国的业务规模缩减,但近年来劳动力和运营成本一直在上涨,所以我们将继续在国内推广我们的品牌和提高产品的质量。

无论2018 年经济如何,集团将继续加强内部程序和机制,未雨绸缪,做好充分准备迎接挑战。

早在2014年,我们开始着力贯彻实行3R政策,以应对外来的各种挑战与变幻莫测的商业环境,使我们的脚步与时俱进。当时的重点是通过重组和调整我们的业务规模来降低运营成本,提高效率和生产力。

自2016 以来,尽管我们还是把重点放在降低运营成本上,同时我们也寻找新的增长来源。今年,我们将进行“节约与发展共存”这种双管齐下的战略,即是寻求销售增长与成本控制。这包括增加分销渠道的范围和网络,寻求合作的合资企业、商业伙伴关系或其他形式的业务合作来发展新的商业机会,以扩大我们的收入来源,并为我们的产品开拓新的市场。

我们还将继续投资于产品技术研发这一块,并利用技术改善我们的生产工艺流程,进一步降低生产成本。

感谢
我代表董事会,向我们的客户和合作伙伴在这一年中对友发的支持表示感谢;谢谢所有员工和管理人员对友发的忠守和不懈的努力,是他们在极具挑战的困境中帮助集团渡过难关。
当然我也要感谢我们的股东们对本集团的充分信任和忠诚。最后,我要向董事会在这一年里对友发给与宝贵建议和贡献致以最真诚的感谢。

2018年,我期待着与我们的股东们一起努力,在度过了最困难的几年后,本集团正整装待发,朝着巅峰逐步平稳上升。

郑添和
执行主席兼集团董事长