As a long-established company, we have weathered many global and regional financial upheavals and through them, we have learnt invaluable lessons which have been translated into sound corporate policies that have permeated and been entrenched in our organisation

DEAR SHAREHOLDERS,
History will record 2018 as a year of great economic and political uncertainty. According to the International Monetary Fund, industrial production and trade slowed down, with business confidence falling, after the upswing in 2017. One of the reasons for this slowdown was the implementation of tariffs by major countries as the protectionist rhetoric gained momentum globally.

In particular, the trade dispute between China and the United States continued to adversely affect investor confidence and rattle stock markets. Europe faced an uncertain future, with the outcome of Brexit still unsettled, while Asian economic growth was uneven,impacted by the slowdown in the Chinese economy. As an open economy,Singapore was impacted by the global economic slowdown.

YHI International Limited (or “the Group”), is no stranger to the vagaries of economics and politics. As a long established company, we have weathered many global and regional financial upheavals and through them, we have learnt invaluable lessons which have been translated into
sound corporate policies that have permeated and been entrenched in our organisation. As a direct consequence of these policies, chief among them being our 3R policy - Reduce inventory, Reduce accounts receivable, Reduce operating cost – we have turned in a respectable performance despite market challenges, rising business costs and margin pressures.

Our inventories are well managed, our accounts receivable within healthy limits and our operating costs tightly controlled despite the subdued market conditions, which have contributed significantly to our financial performance. While cost control, healthy cash flow and a strong balance sheet are imperative to the financial well being of an organisation, revenues are the determinant factors for growth. On this front, we improved overall sales through concerted and determined business development efforts by all our divisions, which is evidenced by our financial results.

FINANCIAL HIGHLIGHTS
The revenue for the year ended 31 December 2018 (“FY2018”) was S$455.6million, representing a 2.9% increase over revenue of S$442.9 million for the financial year ended 31 December 2017 (“FY2017”). Net profit attributable to equity holders of the Company (“net profit”) stood at S$13.7 million, which is an increase of 56.8% over FY2017’s net profit of S$8.8 million.

The revenue increase was attributed to higher turnover in the both the Group’s distribution and manufacturing businesses, while the net profit position was on account of higher profit contribution from the manufacturing business compared to FY2017.

Profitability-wise, gross profit and gross profit margin fell by 5.0% to S$97.5 million and by 1.8 percentage points to 21.4%, respectively, from S$102.5 million and 23.2% in FY2017.

The lower gross profit margin was on the back of lower gross profit margin from both the distribution and
manufacturing businesses. Lower gross profit margin from the distribution business was due to intense price competition in the market while that of the manufacturing business stemmed largely from higher aluminium prices and other production costs.

The main contributor to Group revenue continued to be our distribution business which accounted for 73% of the Group’s revenue. While the overall distribution business recorded an increase in sales of 3.1% to S$332.3 million from S$322.4 million in the previous financial period, the tyre distribution business which accounted for 41% of total group revenue recorded lower sales.

Tyre distribution continued to face price pressures, a
confluence of low rubber prices and prevailing excess capacity in the market which has yet to be absorbed. The impact from the lower performance of the tyre distribution business was mitigated by our industrial product and automotive battery business (“Energy Solutions”) which
achieved positive growth due to higher sales achieved by the industrial battery business while the wheels division turned in a consistent performance.

Another positive financial highlight was the performance of the Group’s wheel manufacturing business which achieved sales of S$123.3 million, a 2.4% increase as compared to FY2017. Our wheel manufacturing factory in Suzhou, China, registered increased orders from the United States, while our facility in Malacca, Malaysia, also experienced higher sales to Germany; our Taiwan facility recorded a marginal improvement in sales as well.

Additionally, the division’s restructuring of manufacturing assets has contributed to its healthy showing; costs savings on labour and other manufacturing overheads from its discontinued operations in Shanghai as well as the lease rental income of the premises there, have positively impacted the Group’s financial performance, despite the increase in raw material prices and higher business costs, particularly in China.

On our balance sheet, we maintained cash and cash equivalents of S$50.8 million as compared to S$54.0 million as at December 2017. Net cash generated from operations was S$15.2 million, with S$8.7 million used in investing activities, mainly for the purchase of an industrial land in Malaysia for future consolidation of the Group’s warehousing and logistics services for the distribution business in Malaysia. A total of S$9.2 million was raised from financing activities to pay trade suppliers.

Our net gearing for the period under review is 13%. With nets assets attributable to shareholders of S$252.9 million, net asset value per share was 86.54 cents based on 292.3 million issued shares, while earnings per share as
at 31 December 2018 was 4.70 cents.

COMMITMENT TO VALUE CREATION FOR SHAREHLDERS
In light of our performance and in line with our commitment to shareholders to generate stable returns, the Board is recommending a one-tier tax-exempt final dividend of 2.35 cents per share.

If approved at the forthcoming Annual General Meeting, the dividend will be paid in May
2019. Based on the closing share price of S$0.395 as at the last practicable date before printing of the Annual Report, this represents a dividend yield of 5.9% and a dividend payout ratio of 50% of our profit.

SUSTAINING THE MOMENTUM OF STEADY GROWTH
While the past financial year was challenging, especially following the Group’s strong showing in FY2017, our best in three years riding on the positive global conditions then, we have managed to sustain the momentum of growth. Through a steadfast commitment to finding new markets
for our products and new customers in existing markets, we have grown our topline at a time when business development would have been low on the priority list of many other organisations.

Much has been previously said of our cost management strategies and it needs no
repeating. Nevertheless, what must be emphasised is our commitment regardless of our performance, to keep on exercising restraint and prudence while simultaneously keeping an eye for opportunities even in the most challenging of times. Towards this end, we have taken
certain strategic decisions in terms of our assets, with long term growth in mind.

In the first half of FY2018, we disposed of our freehold warehouse and office building of our Australian subsidiary as part of our further efforts to streamline and optimise the use of our resources and to be nimble in responding to market demand changes. The Group simultaneously
made strategic investments elsewhere, laying the groundwork for future business initiatives. In October, we completed the purchase of two lots of industrial land in Malaysia through our Malaysian subsidiaries.

The land was purchased with a view to building up the Group’s logistics and warehousing capabilities over time to serve our existing distribution entities and customers there. We have plans to gradually consolidate our warehousing and logistics services, thus reducing our warehouse rentals costs and related overheads. We will eventually extend our offerings to just-in-time delivery services to be managed by logistics professionals, with a view to enhancing and distinguishing our customer service. This
will enable our customers to leverage on our capabilities, in turn eliminating or reducing their own warehousing space requirements and achieving cost savings.

CREATING OPPORTUNITIES AMIDST THE HEADWINDS
There are headwinds on the horizon and we anticipate that FY2019 will prove to be challenging. Firstly, the United States-China trade dispute remains unresolved. The US has postponed its deadline for the imposition of the increased 25% tariff, which was supposed to have been effected after 1 March 2019, due to progress made during recent trade negotiations. We had taken steps to mitigate its effect on our customers in the United States and on our wheels manufacturing business in Suzhou, China; we have ensured that our US customers have sufficient stock while our manufacturing facilities in Malaysia and Taiwan ramp up production to meet demand.

Nevertheless, a prolonged trade war between the two largest economies in the world will inevitably take its toll on the global economic activity. There are other downside risks. China’s growth is projected to moderate on account of a slowdown in credit growth and softer external demand. The economies of ASEAN countries may also face a slowdown or at best stagnation.1 Several new governments and administrations have been voted in on populist sentiments that are heralding changes in economic and foreign policies that may have far reaching reverberations particularly as protectionism gains momentum. All these do not bode well for business sentiment and consumer spending which will in turn impede economic growth and impact business earnings.

Faced with these external pressures, we are continuing to focus on improving our internal organisational capabilities, enhancing our productivity, leveraging on technology, increasing automation and finding new channels of sales. As business revolutionises, we have to take transformative steps to ensure we are in step with these changes and to maintain our competitive advantages. With technology empowering consumers to make informed choices based on price, service levels become imperative as a distinguishing characteristic of our business and as a means of preserving and even improving our profit margins. We will, therefore, continue to seek ways to value add to our customer experience and enhance our service levels.

At the same time, we will seek long term and sustainable growth opportunities, looking for yield accretive investments that will complement our existing businesses. We are also looking at opportunities in countries such as Vietnam and Indonesia for future expansion. Vietnam is projected to grow above 6% while Indonesia’s growth is pegged above 5% in 2019-2020. Both markets offer opportunities given their growing middle class, relative economic stability and ongoing job creation for the population.

Furthermore, there is no longer a compelling case for our expansion in China due to rising business costs and intense market competition there, although it will continue to be an important base of
operations and market for us. We will adopt a cautious approach always with a view to sustainable growth, balancing this with a keen eye for opportunities and a bold spirit to take us forward.

IN APPRECIATION
In closing, the Board of Directors and I would like to express our thanks to our customers, partners and shareholders for their support during the year. We would like to extend our warm appreciation to the talented and dedicated staff and management for their efforts and achievements in helping us through another challenging year.

Finally, we would not be able to have had the right strategies and plans in place without the guidance, acumen and foresight of our Board of Directors. I have every confidence in our team in executing our plans and bringing the Group through FY2019. Opportunities, after all, are made through effort and do not exist just for the taking.

Richard Tay
Executive Chairman & Group Managing Director

亲爱的股东们,
过去的一年证实了2018年是经济和政治都极其不稳定的一年。根据国际货币基金组织的数据,由于商业信心的下降,工业生产和贸易在2017年上涨后
放缓。而随着保护主义言论在全球范围内获得了动力,一些主要国家纷纷实施了关税,这也是导致工业生产和贸易放缓的原因之一。特别是中美之间的
贸易争端继续对投资者信心造成了有害影响,使股市动荡不安。英国退出欧盟一直以来悬而未决,欧洲经济前景不明朗。

整个亚洲受中国经济放缓的影响,其经济发展不平衡。而新加坡作为一个开放的经济体,势必受到全球经济放缓的侵扰。友发国际有限公司 (或 “集团”) 可以说对这种经济和政治的变幻莫测尚有经验和应对措施。

作为一家历史悠久的公司,我们经历了许多全球和区域金融动荡,从这些动荡中,我们学到了不少宝贵的经验教训,并将这些经验教训转化为健全完善的企业政策,这些政策已经渗透到我们的组织中并且根深蒂固。这些政策包括我们的3R政策——减少库存、减少应收账款、降低运营成本——尽管面临市场挑战、运营成本上升和利润的压力,我们仍取得了骄人的业绩。

尽管市场环境低迷,但我们的库存管控良好,应收账款在健康合理的范围内,我们的运营成本也受到严格控制,这些都给我们取得良好的财务业绩打下
了重要基础。虽然成本控制、健康的现金流和强大的资产负债表对于一家企业的财务健康状况至关重要,但收益是企业增长的决定性因素。在这方面,我们通过各部门的协调,一致的坚决的开拓发展业务,提高了整体销售额,我们的财务业绩报表上也可以看到这一点。

财务业绩
2018年12月31日 (“2018财政年度”),集团总销售额达到4.556亿新元,比去年同期 (截至2017年12月31日 “2017财政年度”) 的4.429亿新元增长2.9%。
集团净利润为1370万新元,比2017年的880万新元增长56.8%。收益增长归因于集团批发业务和制造业务的营业额增加,而净利润则来自制造业务的盈
利贡献比2017年较高。

利润方面,毛利从2017年的10250万新元下降至9750万新元,下降5.0%;毛利率从2017年的23.2%,下降了1.8个百分点21.4%。批发业务和制造业毛利率较低导致了总毛利率下降。批发业务毛利率较低是由于市场价格竞争激烈,而制造业务毛利率较低很大程度上是由于铝价和其他生产成本上涨。

批发业务仍然是本集团收入的主要来源,占总销售额的73%。虽然整体分批发业务的销售额较上一年的3.224亿新元增长3.1%,达到3.323亿新元,但轮胎批发业务占集团总收入的41%,销售额有所下降。轮胎批发继续面临着价格压力,这是橡胶价格低廉且市场上普遍产能过剩来不及消化等因素合力所致。我们的工业产品和汽车电池业务凭借高销售额,实现了正增长,从而弥补了轮胎销售业务表现不佳的不足,而轮毂制造部门的业绩持续稳定。

另一个财务亮点是集团轮毂制造业务的表现,本年度实现了1.233亿新元的销售额,与2017年相比增长了2.4%。我们中国苏州的轮毂制造厂增加了来自美国的订单,而在马来西亚马六甲的工厂也增加了对德国的销售;我们在台湾工厂的销售也略有增长。此外,尤其在中国,原材料价格上涨和业务成本上升,制造业资产的重组无疑有助于本集团业务健康发展,停止上海工厂运营,省去了劳动力成本和其他制造业日常开支,加上租赁租金的收入对提高本集团的财务业绩都起到了积极作用。

我们的资产负债表,现金和现金等价物为5080万新元,而截至2017年12月为5400万新元。经营活动现金额为1520万新元,其中870万新元用于投资建设,主要用于购买马来西亚的工业用地,以供将来马来西亚批发业务的仓储和物流服务。金融活动中的920万新元,用于支付贸易供应商。我们的净负债率为13%。归属于股东的净资产为2.529亿新元,发行股票2.923亿,每股净资产值达到86.54分,而截至2018年12月31日的每股收益为4.70分。

为股东创造价值的承诺
尽管过去一个财政年度富有挑战性,那也是我们三年来在当时全球条件积极的情况下取得了最佳业绩,继2017年的强劲表现之后,我们再一次设法维持了增长势头。通过坚定不移地致力于为我们的产品寻找新市场和现有市场中的新客户,在许可其他企业不屑开发的业务上,我们逐一扩展了我们的产品线。关于我们的成本管理策略,以前说过很多,这里不再累述。然而必须强调的是,不管我们的业绩如何,我们都要保持理智的头脑和谨慎的态度,同时还要目光敏锐,不放过任何机会,即使在最困难的时候也是如此。为此,考虑到长期发展,我们在资产方面做出了一些战略决策。

在2018年上半年,我们出让了澳大利亚子公司的不动产仓库和办公楼,这是我们进一步努力精简和优化资源以灵活应对市场的需求变化。本集团同时在
其他地方进行战略投资,为未来的业务开拓计划奠定了基础。10月份,我们通过马来西亚子公司在马来西亚完成了两批工业用地的收购。土地的购买旨
在逐渐增强本集团的物流和仓储能力,以服务于当地现有的批发实体和客户。我们计划逐步巩固我们的仓储和物流服务能力,从而降低我们的仓库租赁
成本和相关管理费用。我们将最终把这项服务扩展到由物流专业人员管理的准时交货服务,以期待提升客户的管理和区分服务。这将使客户能够利用我
们的资源,消除或减少他们自己的仓储需求,实现成本节约。

在逆境中创造机会
逆境无处不在,我们预计2019财年还是具有挑战性的。首先,美中贸易争端仍未解决。由于近期贸易谈判取得进展,美国推迟了征收25%关税的最后期限,该关税本应在2019年3月1日后生效。

我们已经采取相关措施减缓其对美国客户和中国苏州工厂轮毂制造业务的影响;我们确保我们的美国客户有足够的库存,同时我们在马来西亚和台湾的制造工厂加大生产以备不时之需。然而,世界上两大经济体之间长期的贸易战不可避免地会对全球经济造成伤害,还有其他的一些负面风险。由于信贷增长放缓和外部需求疲软,中国经济增长预计将放缓。

东盟国家的经济也可能面临放缓,甚至是停滞。(工贸部预测,2018年国内生产总值将增长3.0%至3.5%,2019年将增长1.5%至3.5%。)。一些新政府和行政部门投票支持民粹主义观点,这预示着其经济和外交政策的改变,特别是在保护主义势头强劲的时候这种改变可能会引起深远的反响。所有这些对企业信心和消费支出都不是好兆头,相反会阻碍经济增长并影响企业收益。

面对这些外部压力,我们继续致力于提升内部管理能力、改进生产力、利用新技术提高自动化程度和寻找新的销售渠道。在这商业变革中,我们必须采
取变革性措施,确保我们的步伐紧跟上这些变革,从而保持我们的竞争优势。科技的发展使消费者能够根据价格做出明智的选择,服务水平悄然已经成
为我们业务的一个显著特征,更是我们保持甚至提高利润率的一种手段。

因此,我们将继续摸索一条增加客户体验和提升服务水平的道路。同时,我们将寻求长期和可持续发展的契机,探寻收益增值投资,以补充我们现有的业务。我们还将在越南和印度尼西亚等国家寻找扩张的机会。2019-2020越南的增长率预计将超过6%,而印度尼西亚的增长率将保持在5%以上。

这两个国家的中产阶级日益壮大,经济相对稳定,不断增长的就业机会,给市场提供了机会。此外,由于中国市场业务成本的上升和激烈的市场竞争,我们在中国扩张的理由不再充分,令人信服,尽管它将继续是我们重要的运营基地和市场。我们将至始至终着眼于可持续发展,采取谨慎的态度,以敏锐的目光,勇于开拓的创新精神,大步向前。

感谢
最后,我代表董事会要对我们的客户、合作伙伴和股东表示感谢,感谢他们在本年度对我们的支持。我们衷心感谢那些有才干和敬业精神的员工和管理
干部所付出的辛勤汗水和取得的成就,是他们帮助友发度过了又一个充满挑战的年度。

最后,我要感谢董事会,如果没有他们的高瞻远瞩和指导,我们将无法制定正确的战略和计划。我对我们的团队在执行计划和带领友发度过2019年度充满信心。总之,机遇不会自己找上门,而是要靠自己的努力去争取的。

郑添和
执行主席兼集团董事长