United Engineers Limited

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Extracted from Annual Report 2015

Dear Shareholders,

The year ended 31 December 2015 saw significant global financial uncertainty and geopolitical instability which inevitably affected the Singapore economy. This in turn had an impact on the Group's overall performance. In addition, the sustained impact of the property cooling measures in Singapore and slower economic growth in China, among others, also affected the Group's property business. Given these unfavourable conditions as well as divestment of the automotive business and MFS Technology (S) Pte Ltd, the Group posted a 42% decrease in revenue from $3.2 billion in 2014 to $1.9 billion. Gross profit declined 18% to $340.6 million but gross profit margin increased from 12.9% in 2014 to 18.3%.

The Group's attributable profit from continuing operations increased 122% from $46.0 million in 2014 to $102.2 million. The Group has been steadily streamlining its portfolio of businesses and operations by divesting non-core businesses and assets. It has also benefited from strategic and cost synergies arising from the acquisition of WBL Corporation Limited (“WBL”). Net debt to equity improved from 0.59 in 2014 to 0.49.

The Board of Directors is pleased to propose a first and final dividend of 5 cents per ordinary stock unit, a special dividend of 3 cents per ordinary stock unit and a preference dividend of 7.5 cents per preference share. These proposed dividends, if approved by members at the forthcoming Annual General Meeting (AGM), will be paid on 25 May 2016.

SG50

2015 was a special year for Singapore as it was her 50th birthday. In recognition of the Group's contribution to Singapore's development over the decades, it was one of the 50 companies honoured at the Singapore Golden Jubilee Business Awards organised by Singapore Business Federation, Accounting and Corporate Regulatory Authority and DP Information Group. After gaining independence in 1965, Singapore embarked on a major rebuilding phase and in the same period, the Group introduced many cutting-edge innovations such as light-gauge steel for roof structures and the Space Deck structural system which allowed column-free construction in buildings. The Group was also one of the first local companies to have steel-casting capabilities and the first publicly-listed company in Singapore to computerise its operations.

Operating highlights

2015 was marked by a number of significant events. Firstly, on the back of its successful restructuring in 2014, Multi-Fineline Electronix, Inc. (“MFLEX”) achieved strong financial performance due to a favourable product mix, operational excellence, improved labour efficiencies, as well as new programmes that ramped during the third quarter.

On the property development front, Eight Riversuites obtained Temporary Occupation Permit (TOP) on 8 January 2016. This is a key milestone as the 862-unit condominium project in Singapore is the largest residential development undertaken by the Group.

More operating highlights can be found in “Review of Operations”.

Continued streamlining of businesses

The Group continued to streamline its portfolio of businesses and operations by divesting non-core businesses and assets to unlock as well as enhance shareholder value. These divestments also enabled the Group to focus on strengthening and expanding its core businesses for future growth. In the China property business, the Group divested its stake in a number of property management companies to concentrate on property development. Other divestments included the Group's stake in PT United Engineers Indonesia which is engaged in fabrication of steel structures in Indonesia, Tangshan UE Shengxing Renewable Resources Co., Ltd. which is involved in industrial waste oil treatment in China, as well as RFNet Technologies Pte Ltd in Singapore which is a provider of wireless broadband communication solutions and related products. In aggregate, such divestments resulted in a net gain on disposal of approximately $30.4 million.

On 5 February 2016, the Group announced the proposed disposal of MFLEX. Although MFLEX returned to sustained profitability since the fourth quarter of 2014 following the completion of its restructuring, the Board is of the view that MFLEX is not strategic to the Group's core businesses in real estate and hospitality. The proposed divestment of MFLEX could further enhance the Group's capital management and unlock value for shareholders. It is expected to generate net proceeds of approximately $505.3 million which will be used to repay external borrowings and as general working capital. An Extraordinary General Meeting (EGM) to obtain shareholders' approval for the proposed disposal will be convened in due course.

WSH and service quality excellence

The Group is dedicated to constantly improve and achieve good Workplace Safety & Health (WSH) standards and service levels. UEL, Park Avenue Clemenceau and UE ServiceCorp Singapore each won a WSH Performance (Silver) Award at the WSH Awards, organised by WSH Council and supported by Ministry of Manpower (MOM), for exemplary WSH performance and sound WSH management systems. In addition, WBL won the Silver Award at the Singapore HEALTH Award organised by Health Promotion Board (HPB) in recognition of its excellent workplace health promotion programmes.

Park Avenue Rochester was named Global Winner under the Luxury Suite Hotel category at the World Luxury Hotel Awards for its world-class facilities and service excellence. In addition, Park Avenue Changi was conferred the Certificate of Excellence by TripAdvisor, one of the world's largest travel sites, for consistently earning good reviews from hotel guests.

Outlook

The world economy outlook remains challenging with the growing geopolitical instability in various regions and worsening economic slowdown in China. In Singapore, given the continuation of the Government's property cooling measures, tighter credit environment and possibility of rising interest rates, demand in the residential property market is likely to remain subdued. In addition, with the existing supply and pipeline of upcoming projects, residential property prices are likely to moderate further. While the slowing economy will continue to weigh on office property demand in Singapore, rental income from the Group's portfolio of investment properties is expected to remain stable. The Group is closely monitoring market conditions in China as its economic recovery is still uncertain, and will adopt appropriate strategies to monetise its properties.

Amid a year likely underscored by the above challenges, the Group will continue to exercise prudence but at the same time look for opportunities to grow its core real estate and hospitality businesses. The Group is well-poised to capitalise on available opportunities and will deploy resources selectively for strategic investments in a period of market weaknesses. With more than 100 years of operational history behind it, we believe the Group can overcome cyclical obstacles and continue to forge ahead for greater growth.

Acknowledgements

We are deeply saddened by the passing of Mr Lee Kuan Yew, Singapore's first Prime Minister, who is widely regarded as the founding father of our nation having played a critical role in the country's economic and social transformation. In many ways, the Group's post-war growth trajectory mirrors Singapore's rapid ascension from a third world to a first world country which was largely a result of Mr Lee's vision. We believe his foresight and resilience will continue to inspire us in the years ahead.

There were some key management changes that we would like to highlight: General Counsel Ms Tan Swee Hong was appointed as Group Company Secretary on 30 October in place of Ms Jeslyn Heng who resigned. The Board would like to thank Mr Ip for his keen leadership as well as gracious acceptance of the role of Group Managing Director to lead and manage our dedicated staff who have displayed exceptional diligence and achieved credible performance during the year.

On behalf of the Directors, we would like to thank our management, staff, business partners, investors and all other stakeholders for their continuous commitment and support to the Group.