UMS Holdings Limited

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Extracted from Annual Report 2017

Dear Shareholders,

The Group is pleased to report that it has achieved a record-breaking revenue of S$162 million and net profit of S$52 million during the year. This represents a 56% increase from S$104 million revenue and 130% increase from S$23 million net profit recorded in the previous year. This makes FY2017 the most profitable year in UMS' history. This was attributable mainly to strong growth of the global semiconductor equipment industry and the result of our relentless pursuit for operational excellence.

In view of the Group's excellent financial performance, the Board of Directors (the "Directors") is pleased to recommend and propose a final dividend of TWO (2.0) Singapore cents and a special dividend of ONE (1.0) Singapore cent. Subject to the approval of the shareholders, the total dividends declared and proposed for FY2017 remained unchanged at SIX (6.0) Singapore cents, despite the 1 for 4 bonus issue during the year.

Sales of new semiconductor manufacturing equipment hit new record in 2017

2017 has been a very good year for the semiconductor industry. Semiconductor sales exceed $400 billion for the first time and semiconductor equipment sales shattered the historic high set in 2000.

Traditional demand drivers have been replaced by a diversity of applications including: Augmented Reality, Virtual Reality, Artificial Intelligence, cloud storage, Smart Automotive (driver assistance and autonomous), Smart Manufacturing, and Smart MedTech. These proliferating demand drivers and ensuing increasing silicon (semiconductor) content in electronics is fuelling what many are calling a "super cycle."

Not only are legacy fabs seeing a resurgence, the industry is seeing the evolution of China transitioning away from primarily being a consumer of chips towards developing a self-sufficient semiconductor supply chain. Spurred by the 2014 National IC Guideline, all IC ecosystem sectors in China are making significant progress. Advancements have been made in chip production with over 24 new fab construction projections underway or planned, prompting the wafer fab equipment market to exceed $11 billion in 2018 and to potentially surpass $18 billion by 2020.

Business Performance

Revenue in the Semiconductor segment jumped 58% while sales in Others decreased by S$0.7 million when compared to FY2016. Both segments of the Group's semiconductor division showed improved results. Semiconductor Integrated System sales soared 73% from S$50.5 million to S$87.4 million in FY2017. Revenue from component sales also went up - by 43% from S$50.9 million in FY2016 to S$73.0 million FY2017.

Geographically, sales in Singapore surged 67% as compared to FY2016 mainly due to stronger Semiconductor Integrated System sales. Revenue in the Group's other served markets also improved considerably; with US sales increasing 61% vs FY2016 while revenue in Malaysia more than tripled to S$6.0 million vs S$2.0 million in the previous year and Others increased 12% in the period under review. The better performance was mainly due to higher component sales.

Gross material margin in FY2017 remained stable at 54.7% (vs 54.1% in FY2016). Expenses were generally higher due to the higher cost from more production activities, the consolidation of Kalf Engineering results, increased personnel costs, legal and professional fees as well as higher exchange loss arising from the depreciation of the US dollar. Income tax expense also rose 64% in line with the higher profits. However, the Group benefitted from a 20% decline in depreciation costs, a S$1.9 million gain on disposal of some old equipment and the S$0.9 million write back of past inventory provision.

Strategic Diversification

The two businesses that we invested made good progress during the year. Both enjoyed order book growth in 2017.

AllStar Manufacturing Sdn Bhd ("Allstar") is now qualified by a few Tier 1 Aerospace companies to supply aircraft components. Moreover, it penetrated the Malaysian automation and semiconductor equipment supply chain. The 51% acquisition of Kalf Engineering Pte Ltd ("Kalf"), a water and chemical engineering solutions company, was completed in March 2017. Subsequent to the acquisition, Kalf completed a few projects. In 2018, it expects to complete at least 4 projects in Asia and Middle-East.

In January 2018, the Group acquired 29.5% or 429,864,300 ordinary shares of Catalist-listed JEP Holdings Ltd ("JEP"). JEP's core business has good long term growth potential and can leverage on UMS's financial and operational strength.

Moving forward, the Group will continue to seek opportunities to diversify its business portfolio through mergers and acquisitions to reduce the dependency on one single segment.

Outlook

SEMI, the global industry association representing the electronics manufacturing supply chain, in its 2017 Year-end Forecast, projects that worldwide sales of new semiconductor manufacturing equipment will increase 35.6 percent to US$55.9 billion in 2017, marking the first time that the semiconductor equipment market has exceeded the previous market high of US$47.7 billion set in 2000. In 2018, 7.5 percent growth is expected to result in sales of US$60.1 billion for the global semiconductor equipment market – another record-breaking year.

This augurs well for the Group given its primary role in the manufacture of components and systems for various semiconductor equipment. The Group remains optimistic that barring unforeseen circumstances, prospects remain bright for FY2018.

Approach to Sustainability

We have produced our maiden sustainability report in this year's annual report. The Group's sustainability goals focus on value creation for our customers, employees, suppliers and other key stakeholders. Our efforts are centred on good corporate governance, upholding of health and safety standards, reduction of environmental impact and efficient resource utilisation.

Appreciation

On behalf of the Board, I would like to express our heartfelt appreciation to all our stakeholders, which include our shareholders, customers, business associates and partners, for their continuous support of UMS.

I would like to thank our fellow Board members for their invaluable advice and guidance over the years. On behalf of the Board, I would also like to take this opportunity to thank Mr Oh Kean Shen, who stepped down during the year to allow for board renewal, for his invaluable contributions and guidance to the Board and wish him well for his future endeavours.

Last but not least, I want to single out our employees and express my special appreciation for their commitment, dedication and hard work. Without them, we would not have achieved what we did.

Luong Andy

Chairman and Chief Executive Officer
UMS Holdings Limited