HONG LEONG ASIA LTD. - hlasia.com.sg

1 hong LEONG asia LTD. Annual Report 20161 hong LEONG asia REPORT 2016 hong LEONG asia LTD. Annual Report 20162 Vision To be a market leader by creating sustainable growth through diversification, innovation and organization excellence, contributing to all our stakeholders - our customers, our people, our shareholders, our environment and our society. Introduction Achieving our vision will only be through the combined effort of each member of the Group, steered by our six core values. Together, these sum up our attitude towards tackling challenges in an ever-changing economic environment: I-ACE-IT CONTENTS01 Group Profile02 Revenue Distribution03 Financial Highlights04 Chairman s Message11 Corporate Structure12 Operations Highlights14 Board of Directors18 Corporate Directory19 Corporate Governance Report43 Sustainability Report62 Financial Report214 Analysis of Shareholdings216 Notice of Annual General MeetingProxy FormIntegrity To uphold the right values through acting responsibly and To be responsible and take ownership of whatever we commit to focus To meet customer needs, wants and expectations by providing outstanding products and change To accept change with an open mind and leverage on it as an opportunity to To be creative and adopt a market leader mentality in the way we manage our products.

2 Services and To support group decisions and work together cohesively to achieve agreed goals and - A C E - I T PROFILE OF hong LEONG asia hong LEONG asia ( HLA ) is the industrial manufacturing and distribution division of hong LEONG Group Singapore. It is one of the largest diversified industrial conglomerates in China and Southeast asia . Listed on the Singapore Stock Exchange since 1998, HLA has five core businesses: Diesel EnginesBuilding MaterialsConsumer ProductsIndustrial PackagingAir-conditioning SystemsHONG LEONG asia LTD. Annual Report 20161 From being Singapore s leading integrated building materials supplier to its current standing as one of the region s major manufacturing and distribution players, hong LEONG asia s success is intricately linked to its diversification into the manufacturing and distribution industries in China and Southeast asia .

3 With over 80 per cent of its market beyond the shores of Singapore, hong LEONG asia is well placed to leverage on its current position to scale greater heights. hong LEONG asia has major operations in China and is well-positioned to take advantage of booming markets driven by the Asian giant. With its head office based in Singapore and its asia management team, the Group combines the best of management practices with a deep understanding of asia culture and local sensibilities. Its diverse management portfolio includes key sectors in the diesel engines, white goods, air-conditioning products and industrial packaging products, as well as capabilities across the supply chain in building materials. Each portfolio is led by a seasoned team of professionals who steer the business towards continued growth and PROFILEH enan Xinfei Electric Co.

4 , Corporation Berhad and Island Concrete (Private) LimitedChina Yuchai International LimitedHONG LEONG asia LTD. Annual Report 20162 CHINASINGAPOREMALAYSIAREVENUE BY COUNTRY(in S$ million)REVENUE BY BUSINESS SEGMENT(in S$ million)ConsumerProducts371 DieselEngines2,820 BuildingMaterials463 IndustrialPackaging39 Air-ConditioningSystems18 OtherSegments14 TOTALS$ billion3,203246236 OTHERCOUNTRIES40 REVENUE DISTRIBUTIONHONG LEONG asia LTD. Annual Report 20162 hong LEONG asia LTD. Annual Report 20163 DIVIDEND POLICYThe Group aims to maintain a strong capital position to ensure market confidence, to support its on-going business and to meet the expectations of its stakeholders. The Board of Directors aims to pay dividends to shareholders at least once a year, balancing returns to shareholders with prudent capital management and consistent with the Company s overall governing objective of maximising shareholder value over time.

5 Before proposing any dividends, the Board of Directors will consider a range of factors, including the Group s results of operations, long-term and short-term capital requirements, current balance sheet, future investment plans and the general business conditions and other macro environment factors. Shareholders and potential investors should note that past dividend distributions should not be taken as an indication of future dividend distributions, and this statement is a statement of our present intention and shall not constitute a legally binding commitment in respect of the Company s future dividends which may be subject to modification (including reduction or non-declaration thereof) in our Directors sole and absolute HIGHLIGHTSEARNINGS/(LOSS) PER SHARE (in cents)2012( ) ( )2016( )DIVIDEND PER SHARE (in cents)ATTRIBUTABLE PROFIT/(LOSS) (in S$ million)2012(35)2013462014272015(61)2016 (71)REVENUE (in S$ million)201220124,1123201320134,51542014 20144,5603201520154,0832201620163,7251 PROFIT BEFORE TAX (in S$ million)

6 201212720132422014237201581201661 hong LEONG asia LTD. Annual Report 20164 CHAIRMAN S MESSAGEOn behalf of the Board of Directors of hong LEONG asia Ltd. ( HLA or the Company ), I wish to present the Annual Report for 2016. BUSINESS REVIEW In the year 2016, there were several significant events. On 23 June 2016, the United Kingdom held a referendum to decide its future in the European Union. The Leave European Union votes won by 52% to 48%. On 9 November 2016, the United States of America voted for their new President, who had pledged to terminate and re-negotiate various international co-operation and trade agreements. All these unexpected events have created uncertainties, presenting even more challenges to businesses in the midst of a weak global economy.

7 In asia , China recorded a full year growth of per annum which was its slowest growth rate in the past 26 years. The overall excess capacity in China continued to have an adverse impact on the Group s China operations, in particular, the Consumer Products Unit. Singapore recorded a GDP growth of in 2016. While the local construction sector grew for the full year of 2016, it shrank for the fourth quarter extending a contraction recorded in the third quarter. This slow growth had an adverse impact on the operating performance of the Group s Building Materials Unit in Singapore. Three of the Group s main business units were affected by the weak business environment. In spite of these challenges, the Group managed to achieve revenue of $ billion for the financial year ended 31 December ( FY ) 2016 compared to the $ billion revenue achieved in the previous year.

8 The Group suffered a loss attributable to shareholders of $ million for FY2016 as compared to the loss of $ million in FY2015 (restated). The loss includes non-cash impairments for certain investments that the Group has in China. At Group level, the net asset value per share for 2016 was $ as compared to $ in 2015 (restated). Three of the Group s main business units were affected by the weak business environment. In spite of these challenges, the Group managed to achieve revenue of $ billion for the financial year ended 31 December ( FY ) 2016 compared to the $ billion revenue achieved in the previous year. hong LEONG asia LTD. Annual Report 20165 Loss per share both on a weighted and on a fully diluted basis in 2016 was cents per share as compared to cents per share in 2015 (restated).

9 DIESEL ENGINES UNIT ( YUCHAI )Yuchai sold 320,424 engines in FY2016, a reduction or 44,143 units less than the 364,567 units sold in FY2015. Yuchai manufactures and sells engines for on-road and off-road applications. The decline in sales was mainly due to reduced sales of engines for off-road applications as a result of the transition of emission standards from Tier 2 to Tier 3 in China, which was aggravated by the different implementation dates for engine makers and application sellers. The engine makers were required to stop production of Tier 2 engines by end September 2015, whereas application sellers were able to continue selling Tier 2 applications up to 31 December 2016. Yuchai s on-road engine sales increased slightly in FY2016, derived from the increase in engine sales for truck applications, which was, however, offset by the decline in engine sales for bus applications.

10 According to the China Association of Automobile Manufacturers, sales of commercial vehicles, excluding gasoline-powered and electric-powered vehicles, grew in 2016. The truck market rebounded mainly in the trailer and mini-truck segments, which are not Yuchai s main segments. The bus market remained weak with a decline in unit sales. As a result, Yuchai recorded revenue of $ billion for FY2016, a slight decline of compared to $ billion a year ago. Yuchai maintains its position as one of China s leading independent engine makers for the commercial vehicles applications. It also recently achieved healthy growth in the marine engine applications segment. BUILDING MATERIALS UNIT ( BMU )BMU operates and supplies building materials in Singapore and Malaysia.