We managed to turn around unhealthy business divisions and subsidiaries by a dedicated on our 3R - policy
- Reduce Inventory, Reduce Accounts Receivables, Reduce Operating Cost - which we first implemented in 2014 to counteract inflationary cost and the economic challenges we had correctly anticipated.

DEAR SHAREHOLDERS,

Amidst a backdrop of global economic malaise, continued weak oil and commodity prices, stock market volatility, political shocks in some parts of the world and resulting cautious corporate and retail spending, YHI International Ltd (“YHI” or “the Group”) registered a weaker performance for the financial year ended 31 December 2016 (“FY2016”). Nevertheless, given the onerous external factors that weighed down heavily on the Group’s businesses, we are encouraged by the substantial progress made in the areas that we had undertaken to restructure our business, rationalise our nonprofit-making assets and develop new opportunities for continued and sustained growth.

We managed to turn around unhealthy business divisions and subsidiaries by a dedicated focus on our 3R policy – Reduce inventory, Reduce account receivables, Reduce operating cost – which we first implemented in 2014 to counteract inflationary costs and the economic challenges we had correctly anticipated. Our prior efforts were directed largely towards the first two components of our 3R policy of reducing inventory and account receivables. We lowered inventory by clearing old stock and curbing excessive purchases to bring the overall stock-holding to below three months’ projected sales. Our account receivables was brought down to healthier levels through more conscientious collection methods. The results were borne out in our robust financial position with much improvement in our operating cashflow. In FY2016, we channelled more energy and focus into reducing our operating cost. Specifically, we right-sized our businesses to more closely align their operating costs and infrastructure with turnover, thus eliminating excess capacity, optimising resources and reducing wastage. We are certain these will bear results in the near future, as our previous efforts have thus far shown, making us a much leaner, nimble organisation, poised to leverage on the eventual economic uptake.

FINANCIAL PERFORMANCE REVIEW
The Group posted revenue of S$465.6 million and net profit attributable to equity holders of the Company (“net profit”) of S$3.7 million in FY2016, representing a year-onyear decrease of 6.7% and 55.2% from revenue and net profit registered in the financial period ended 31 December 2015 (“FY2015”). The decreased revenue was on the back of lower sales from both the distribution and manufacturing businesses as compared to FY2015. With the exclusion of retrenchment compensation payable on the consolidation of our Shanghai wheel manufacturing operations into our Suzhou factory and the disposal gain from our Sepang plant in 2015,net profit after tax and non-controlling interests would have increased by 23.6% for FY2016 While our gross profit decreased by 6.2% to S$100.3 million as compared to the same period last year, our gross margin increased to 21.6% in FY2016 as compared to 21.4% in FY2015 on account of higher gross profit margin from both the distribution and manufacturing businesses.

The distribution business remained the main contributor to the Group’s revenue, constituting 69.6% of Group revenue. In line with the overall decrease in revenue, the business posted sales of S$323.8 million, 6.9% lower than the same period last year. Our distribution business, as with most businesses, is affected by the economic state of the markets in which we operate. Most of our Asia-Pacific markets are resource-based economies, largely influenced by commodity prices. With the decline in commodity prices, including rubber and oil prices, between 2011 and early 2016, these economies were gravely impacted, which in turn directly affected our revenue. Two other factors in the tyre distribution business impacted our profits due to downward pressure exerted on tyre prices. First was weak market demand. The second is the oversupply of tyres in the global market which also led to price competition and further margin erosion. Taking into consideration these factors collectively, our distribution business hasdone well to mitigate their impact on our profits through conscientious cost control measures.

The Group’s wheel manufacturing business registered sales of S$141.8 million, a 6.4% decrease in turnover. Amid the slowing global economy, the sluggish demand of Aftermarket wheels continued to weigh heavily on our wheel manufacturing business, despite an improvement in our Original Equipment Manufacturing (OEM) wheel manufacturing business in Shanghai. Despite this improvement, lower OEM subcontract prices twinned with the rising operating costs in Shanghai impacted the overall profitability of the wheel manufacturing business as a whole. With the blueprint to success in restructuring readily available in our consolidated production operations from Sepang to Malacca, we embarked on a similar restructuring plan to consolidate our manufacturing operations in Shanghai to Suzhou. In the first quarter of FY2016, we moved our precision moulding operations from Shanghai to Suzhou, realising savings in rental and fixed overhead costs. Subsequently, we commenced relocation of our wheel manufacturing operations from our factory in Shanghai into our Suzhou factory to further reduce operating cost. We plan to move the production capacity of our Shanghai factory to our Suzhou and Malaysia factories, with the moving of machinery expected to be completed by the first half of 2017. With this consolidation, we expect to raise our production efficiency and lower the wheels manufacturing costs in China. We have seen the positive results of restructuring and consolidation in our Malaysian operations. Our Malacca operations are the best performing among the Group since the consolidation of operations from Sepang to Malacca in 2015. We anticipate seeing similar positive results from this restructuring, although the cost of rationalisation is being felt immediately this financial year. The consolidation exercise has right-sized our operations in tandem with turnover, enhancing our efficiencies through the streamlining of our operations and the leveraging of greater synergies from operating only one manufacturing facility. Reduction in business costs, such as rental and fixed overheads, will also enable us to strengthen our balance sheet, conserving much needed resources for future growth opportunities.

KEEPING OUR BALANCE SHEET STRONG
With an effective cost management strategy encompassing our adherence to reducing inventories and account receivables, we are pleased to report that the Group’s balance sheet is in a robust state. As at 31 December 2016, we generated total net cash flow of S$44.3 million from operating activities after changes in working capital with cash and cash equivalents amounting to S$50.4 million. Total assets stood at S$402.4 million with S$242.5 million in net assets attributable to shareholders, translating to a net asset value per share of 82.97 cents per share based on the 292.3 million shares in issue. The Group’s net gearing ratio was at an acceptable 19 % as at 31 December 2016.

RETURNING VALUE TO SHAREHOLDERS
Despite the challenging environment, the Board is recommending a first and final tax-exempt cash dividend of 0.64 cents per ordinary share for FY2016, subject to approval at our annual general meeting to be held on 26 April 2017. This represents a dividend yield of 2% based on the closing share price of S$0.33 cents as at 31 December 2016 and a dividend payout of 50% of our net profit. Our distribution of dividends is in line with our commitment to returning value to shareholders and as a recognition for their unwavering support and belief in YHI.

OUTLOOK AND FORWARD STRATEGY
There are headwinds on the horizon, despite the expected pick-up in emerging markets and developing economies as well as the projected growth in the US economy resulting from fiscal stimulus.1 Increasing protectionist rhetoric and threat of trade barriers, uncertainty surrounding the US trade policies in light of the new administration, reverberations from Brexit, China’s corporate debt situation and geopolitical factors are all downside risks to projected growth. We thus have to be prepared for more uncertain times ahead.

The gradual increase in commodity and oil prices augurs well for our tyre distribution business in particular. Nevertheless, we do not see a real turnaround occurring until at least 2018. We anticipate price competition to continue intensely in FY2017 due to the prevailing overcapacity in the tyre industry. Hence, our ongoing focus on cost management, rationalising and restructuring while exploring new sales channels and business opportunities. With respect to our power distribution business, we have incorporated a wholly-owned subsidiary in Malaysia, YHI Power (Malaysia) Sdn. Bhd. with a view to expanding our power business network in Malaysia. We will look for other such opportunities to augment our distribution business.

We expect the difficult market conditions of the wheel manufacturing business to remain well into 2017. The antidumping duty of 22.3% imposed by the European Commission on aluminium wheels imported from China entering the European Union is set to continue. With the United States adopting a protectionist stance, it is uncertain if there will be similar measures imposed for our wheels being imported into the United States, which currently has only imposed anti-dumping duties on tyres. We thus have to be prepared for such a scenario and other similar measures. Towards this end, we will continue to innovate, invest in research and development, improve our technical competencies and enhance our production processes to bring down further production costs to counter such threats to our profitability.

While we cannot control external factors which impact our business, we can and must control our internal responses to these factors. We need to determinedly focus on the 3Rs across our businesses with an emphasis on reducing operating cost through restructuring, rationalising and right-sizing of our businesses as well as raising productivity and efficiency as a counterforce to external threats and to keep up with the dynamics of business conditions. Simultaneously, we have to continue developing new business opportunities through 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.

IN APPRECIATION ,
in conclusion, the board of Directors and I would like to express our appreciation to our customers and partners for their support during the year and to our staff and management for their commitment and hard work, especially during these very challenging times. We would also like to thank our shareholders for their loyalty and belief in the Group. Lastly but no less importantly, my sincere appreciation extends to the Board of Directors for their invaluable counsel during the year. I look forward to working with our stakeholders in FY2017 for sustainable growth, continuing returns to shareholders and value creation for all.

Richard Tay
Executive Chairman &
Group Managing Director

亲爱的股东们,

在全球经济低迷的背景下,石油和原材料商品价格持续疲软,再加上区域政治动荡因素导致消费市场停滞不前,截至2016年12月31日,友发国际有限公司(“友发”或“集团”) 的2016财政年度业绩表现不理想。然而,鉴于外在因素在很大程度上拖累集团的业务,我们已经在一些领域进行了业务的重组,整理一些无盈利公司,并为持续增长开拓新的机遇,我们很欣慰这些都取得了实质性的进展。我们一直致力于我们的3 R政策,降低库存、减少应收账款之风险、降低经营成本,我们的3R政策首次在2014年执行,以应对我们所预期的经济缓慢的挑战,本着3R政策的精神,我们设法整顿了运营不良的业务部门和子公司。而我们也很大程度上将重点放在3R策略的前两个政策上,那就是减少存货和应收账款的风险.我们通过清理老库存和抑制过度采购来降低库存,使整体库存低于三个月的平均销售量。我们研究制定各种收款方式,使我们的应收账款降到一个更健康的水平。通过以上种种措施,我们财务状况趋于稳健,营运现金流得到了很大的改善。2016年,我们将更多的精力和时间花在降低我们的经营成本上。具体来说,我们调整业务规模,将运营成本,基础设施更紧密地和营业额结合在一起,从而消除产能过剩,优化资源,减少浪费。我们相信我们所做的这些努力在不久的将来定会开花结果,呈现给我们一个更精简、灵活的组织,随时应对未来的经济复苏。

财务业绩回顾
2 016年,集团总收入为4亿6千5百60万新币,归属于本公司股东的净利润为3百7 0万新币,营业收入和净利润与2 015财政年(截至2 015年12月31日)同比分别减少6.7%和55.2%。与2015年相比,批发部和制造部门销售量的减少造成了2016年营业收入的下降。除去上海友发制造整合到苏州工厂的裁员补偿和2015 年雪邦工厂的处理增益,2016年的净利润增加23.6%。而我们的毛利润为1亿30万新币,同比去年下降6.2%,基于批发和制造业务取得了较高的毛利率,2016年我们的毛利率上升至21.6%,2015年的毛利率为21.4%。

批发业务仍然是本集团收入的主要来源,占集团收入的69.6%。随着整体收入的减少,批发业务的销售额为3亿2千3百80万新币,比去年同期下降6.9%。我们的批发业务,与大多数业务一样,受到了市场经济的影响。大部分的亚太市场都是资源型经济,很大程度上依赖于原材料商品的价格。随着商品价格下跌,包括橡胶和石油价格,从2011年至2016年初,市场经济受到严重影响,这反过来又直接影响我们的收入。由于经济下行压力波及轮胎价格,轮胎批发业务的另外两个因素影响了我们的利润。首先是市场需求疲弱。第二个因素是轮胎在全球市场供过于求,这也导致价格竞争和进一步的利润空间减少。考虑到这些抑制需求的不利因素,我们的批发业务认真制定执行成本控制措施,从而减轻这些因素对利润的影响和损失。

本集团的轮毂制造业销售额为1亿4千1百80万新币,营业额减少6.4%。在全球经济放缓的背景下,尽管上海友发的OEM轮圈制造业务有所改善,但售后市场对汽车轮毂需求的低迷,继续对我们的轮毂制造业造成沉重的冲击。还有OEM转包的低端价格,加上经营成本上升,这些都从总体上影响了上海轮毂制造业务的整体盈利能力。我们效仿先前将生产运营从雪邦移转到马六甲,重组马六甲工厂的成功模式,又拟定了一条相似的重组计划,将我们在上海的制造业务迁往了苏州。2016年的第一季度,我们把精密数控模具设备从上海搬到苏州,节省了租金和固定费用。随后,我们开始着手逐步将整个轮毂制造业务从我们的上海工厂搬迁到苏州工厂,以进一步降低运营成本。上海工厂的产能会分别转移至苏州和马来西亚两个工厂,我们计划在2017年的上半年,完成机器设备的搬迁。通过这样的整合,我们希望提高我们在中国工厂的生产效率,降低制造成本。我们已经看到马来西亚业务在重组之后取得的成果。自从2015年将雪邦业务归整到马六甲后,马六甲业务便是集团中表现最好的。我们期待在中国的这一重组能够取得同样的佳绩,虽然重组业务代价不菲。 工厂重组合并之后,只经营一家工厂的生产设备,能够简化运营,充分利用更大的协同效应,使规模适中的业务经营能带动营业额,提高我们的效率。业务成本的降低,如租金和固定费用的降低,也将使我们能够改善我们的资产负债表,为未来的增长储备所需的资源。

保持资产负债表强劲之势
凭借有效的成本管理策略,包括坚持减少库存和应收账款,我们很高兴地宣布本集团的资产负债表处于一个稳健的状态。截至2016年12月31日,经营业务之总现金流净额为4千4百3 0万新币,现金及现金等价物总额达5千零4 0万新币。资产总额为4亿2百40万新币,归属于股东的净资产为2亿4千2百50万新币,发行股票2亿9千2百30万股,每股净资产为82.97分。截至2016年12月31日,本集团之净负债比率为19%,在可接受范围内。

回馈股东
尽管经营环境充满挑战,董事会仍建议2016年的首次及期末免税现金股息为每股普通股0.64分,此提案会在2017年4月26日我们的年度大会中商讨决议。这代表截至2016年12月31日股票收盘价为0.33分,股息收益率为2%,股息支付占我集团总净利润的50%。我们本着对股东的承诺,进行红利的分配,以此来回馈股东对友发的一如既往的支持和信任。

展望未来及前进战略
尽管新兴市场和发展中经济的预期回升,以及美国经济在财政刺激下所产生预计增长,但是目前世界经济复苏仍是困难重重。日益增长的保护主义言论及对贸易屏障的威胁,美国贸易在新政府管理政策下的不确定性,英国退出欧盟的反响,中国企业的债务状况及其地缘政治因素,这些都是预期增长的下行风险。因此,我们必须为未来的不确定期做好充分准备。

石油等原材料商品价格的逐渐增加,预示着对我们的轮胎批发业务市场需求将有着一些正面的帮助。但是,至少到2018年我们没有看到有真正的转机会发生。轮胎行业普遍产能过剩,我们预计2017年轮胎价格竞争战仍会持续。因此,我们会继续加强成本管理,合理化运营和业务重组,同时开拓新的销售渠道和商机。至于我们的电池批发业务,我们已在马来西亚注册成立了一家全资子公司,友发电池(马来西亚)私人有限公司,以扩大我们马来西亚的电池批发网络。我们将在其他区域寻找这样的机会,以增强我们的批发业务。我们预计2 017年,我们的轮毂制造业的市场状况依旧艰难。欧盟委员会对从中国进口的铝合金车轮增收22.3%的反倾销税仍将继续。美国目前只对进口的轮胎征收反倾销税,但由于美国采取了保护主义措施,目前还不确定是否会采取类似的措施对我们的铝合金车轮实施反倾销税。因此,我们必须准备好以应对这样的情况。为此,我们将不断创新,投资于研发,提高我们的技术能力,提高我们的生产工艺,以进一步降低生产成本, 以消除所有这些影响到我们盈利的威胁。

虽然我们不能控制影响我们业务的外部因素,但我们可以而且必须控制我们的内部因素。我们需要坚定地在企业内部执行3R政策,将重点放在重组,清理和精简业务,提高生产力和生产效率以达到降低运营成本的目的,克服外界因素,营造一个富有活力的良好的经营状况。同时,我们将继续发展新的商机,加强我们的批发渠道和网络,并寻求企业合资,合作伙伴或其他形式的业务合作,以增加我们的营业额,为我们的产品开拓更多新市场。

感谢
在这里,董事会和我要对在这一年里,尤其是在这艰难的时刻,支持我们的客户和合作伙伴表示感谢,还要为我们的管理人员和员工们的承诺和辛勤工作表示感谢。我们还要感谢我们的股东们对友发集团的忠诚和信任。最后,我真诚地感谢董事会成员们在这一年里给出的宝贵意见和建议。我期待着2017年与我们的股东们并肩作战,使友发持续增长,创造更多价值,继续回馈给股东们。

郑添和
执行主席兼集团董事长