UMS Holdings Limited

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Full Year Financial Statement And Dividend Announcement

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UNAUDITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2016

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Comprehensive Income

Balance Sheet

Balance Sheet

Review Of Performance

Financial Review

Revenue

UMS revenue for the three months ended 31 December 2016 ("4Q2016") jumped 56% to S$34.2 million, as compared to S$21.9 million in the previous corresponding period ("4Q2015"). This was mainly due to higher semiconductor component and integrated system sales during 4Q2016. Quarter-on-quarter, UMS 4Q2016 revenue increased by 31% from S$26.1 million in the preceding quarter ("3Q2016"). This was attributed to strong customers demand in the global semiconductor market this quarter.

Segmentally, revenue in the Semicon segment soared 51% to S$32.4 million in 4Q2016 from S$21.5 million in 4Q2015. Compared to 4Q2015, semiconductor Integrated System sales increased by 155% from S$7.3 million to S$18.5 million whereas revenue from component sales decreased by 2% from S$14.2 million to S$13.9 million. Revenue contribution from the Others segment increased by 351% to S$1.8 million in 4Q2016, compared to that of S$0.4 million a year ago. This was a result of the shipment of water disinfection systems to Kalf Engineering Pte Ltd (see Note 13). Compared to the preceding quarter of 3Q2016, 4Q2016 revenue from Semicon segment increased by 25% whilst Others segment increased by 626%.

Geographically, Singapore continued to be the key revenue contributor of UMS, contributing S$25.1 million in 4Q2016 which is a 155% jump as compared to S$9.9 million in 4Q2015. This is mainly due to higher semiconductor integrated system sales. For the same period, revenue from the US in 4Q2016 decreased by 34% to S$2.8 million as compared to S$4.3 million in 4Q2015, while revenue from Others also decreased 24% from S$7.3 million in 4Q2015 to S$5.6 million in 4Q2016. The decrease in sales is mainly due to lower component sales.

For the year ended 31 December 2016 ("FY2016"), UMS revenue decreased 6% to S$104.2 million, compared to S$111.1 million a year ago ("FY2015"). The decline in revenue was mainly due to weaker performance during the first half of this year. Similarly, revenue from Semicon segment decrease 8% to S$101.4 million in FY2016 from S$110.1 million in FY2015. Compared to FY2015, semiconductor Integrated System sales increased by 19% from S$42.6 million to S$50.5 million whereas revenue from component sales decreased by 25% from S$67.6 million to S$50.9 million. Revenue from Others segment increased 190% from S$1 million in FY2015 to S$2.8 million in FY2016.

Over the same period, UMS revenue from Singapore in FY2016 increased by 23% from S$54.6 million in FY2015 to S$67.2 million in FY2016. Revenue in US decreased by 59% in FY2016 to S$10.8 million from S$26.6 million in FY2015, while revenue from Others decreased by 14% from S$28.3 million in FY2015 to S$24.3 million in FY2016.

Profitability

In 4Q2016, UMS's gross material margin decreased to 46% as a result of change in product mix. Employee benefits expense increased by 18% from S$2.8 million in 4Q2015 to S$3.3 million in 4Q2016 due to higher headcount and overtime costs incurred to achieve higher production output as well as higher bonus provisions. Depreciation expenses decreased from S$1.6 million in 4Q2015 to S$1.2 million in 4Q2016 due to some assets being fully depreciated.

Other expenses decreased by 6% from S$2.6 million in 4Q2015 to S$2.5 million in 4Q2016 mainly due to lower maintenance of machinery and equipment carried out during the quarter. Other credits/charges recorded a charge of S$2.5 million in 4Q2016 as compared to a credit of S$0.1 million in 4Q2015. The charge was a result of a partial impairment recognised on the goodwill arising from the acquisition of Integrated Manufacturing Technologies Inc (S$1.6 million), inventory provisions of S$2.3 million, S$0.8 million of inventory written off, partially offset by exchange gain (S$2.1 million) resulting from the appreciation of USD against SGD in 4Q2016. In 4Q2016, the management assessed the recoverability of the investment in Integrated Manufacturing Technologies Inc ("IMT-US). In view of the underperformance of the company, a goodwill impairment of S$1.6 million was calculated based on the recoverable amounts of IMT-US, value in use calculation using forecast earnings and cash flows at that time.

UMS's net profit decrease to S$6.0 million in 4Q2016, from S$10.0 million in 4Q2015.

In FY2016, UMS' gross material margin decreased to 54% as compared to 60% in FY2015 as a result of change in product mix. Employee benefits expense decreased by 15% from S$13.5 million in FY2015 to S$11.5 million in FY2016. Depreciation expense decreased from S$7.4 million in FY2015 to S$5.4 million in FY2016.

Other expenses saw a decrease of 15% from S$11.8 million in FY2015 to S$10.1 million in FY2016. In line with the lower profit, income tax expense also decrease. The higher effective tax rate in FY2016 when compared to that of FY2015, was mainly due to lower PIC tax benefits claimed in FY2016 as compared to FY2015.

As a result of the above, UMS recorded a net profit of S$22.6 million for FY2016, a 34% decrease from S$34.3 million in FY2015.

Cashflow

In line with UMS' cash flow generating capabilities, the Group registered a positive operating cash flow of S$12.4 million and free cash flow of S$12.0 million in 4Q2016, as compared to S$11.7 million and S$8.8 million respectively in 4Q2015. The Group was able to generate comparatively high cash flow mainly because many expenses recorded in the income statement were non-cash in nature. .

For the full year, UMS generated a positive operating cash flow of S$33.9 million and free cash flow of S$31.2 million, as compared to S$35.8 million and S$31.3 million respectively in FY2015.

As of 31 December 2016, despite paying dividend of S$25.7 million, the Group achieved net cash and cash equivalents of $42.6 million, surpassing last year's record of S$38.9 million.

Commentary

SEMI, the global industry association representing more than 2,000 companies in the electronics manufacturing supply chain, reported in their SEMI Year-end Forecast released in December 2016 that worldwide sales of new semiconductor manufacturing equipment are projected to increase 8.7 percent to $39.7 billion in 2016. SEMI has also projected that in 2017, another 9.3 percent growth is expected, resulting in a global semiconductor equipment market totaling $43.4 billion.

For 2016, Taiwan and South Korea are projected to remain the largest spending regions, with China joining the top three for the first time. Rest of World (essentially Southeast Asia), will lead in growth with 87.7 percent, followed by China at 36.6 percent and Taiwan at 16.8 percent.

SEMI forecasts that in 2017, equipment sales in Europe will climb the most, 51.7 percent, to a total of $2.8 billion, following a 10.0 percent contraction in 2016. In 2017, Taiwan, Korea and China are forecast to remain the top three markets, with Taiwan maintaining the top spot even with a 9.2 percent decline to total $10.2 billion. Equipment sales to Korea are forecast at $9.7 billion, while equipment sales to China are expected to reach $7.0 billion

The Group has recently renewed its integrated system business contract with its key customer for another 3 years, with the option to further extend another 3 years, upon reasonable and mutually agreed terms and conditions. This puts the Group in a good position to benefit from the industry growth and also adds stability to its revenue base.

As announced on 24 Feb 2017, UMS will continue to pursue its diversification strategy by investing into a Singapore water and chemical engineering solution company. The investment amount as well as subsequent performance of this investment is not expected to have a material impact to the Group's financial performance in the next 12 months, (Please see separate announcement for more detail).

Barring unforeseen circumstances, the Board of Directors is optimistic that FY2017 will be a profitable year for the Group