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Dear Fellow Shareholders,

The global economy has had an interesting year, with shifting political environments creating economic uncertainty. Within this volatile environment, the Indonesian economy is recovering from its commodity price hangover, and except for some short-term volatility around the US elections, the rupiah and the Indonesian capital markets are relatively healthy. The Tax Amnesty not only filled a budget gap caused by lower than expected tax revenues due to lower oil and gas and mining and manufacturing activity, but had the added benefit of bringing almost S$500 billion of previously undeclared assets and 800,000 tax payers into the regularised economy. This will lead to a more effective, efficient, and transparent tax system, reducing leakages, and giving the government additional future revenues to invest on its programs, especially on improving infrastructure and education.

The outlook for Indonesia going forward is optimistic. The Economist now ranks Indonesia 3rd after China and India as preferred investment destination in Asia, and Indonesia attracted over $159 billion of direct investments in 2016. The President's efforts at reducing corruption and bureaucracy has also led the country to rise 15 places in the annual World Bank Ease of Doing Business index to 91st, with improvements in almost every category. His One Stop Shop concept for licenses and permits has also had a direct impact on our company, with our industrial parks being included among the 32 across the country to qualify for the KLIK program which streamlines the whole licensing process, and allows investors to commence construction even before completing the licensing formalities. The reduction in the negative list for strategic industries is also encouraging to foreign investors. Coupled with the significant fiscal support into infrastructure investments, we believe the future of the Indonesian economy is strong. And your company is well placed to benefit.

Our automotive business will benefit from the increasing demand for passenger vehicle as some 21 million people join the consuming class over the 5 years to 2020 taking the number from 67 million to 88 million consumers. Our automotive financing business also benefits from this growing consumptive class, as does our vehicle leasing business. Our logistics JV with the Japanese logistics company Seino positions us to capture a portion of the online economy, while complimenting our expertise in our core vehicle business. Our utilities business will benefit from the increasing demands for power and clean water, and our industrial parks will benefit from increasing manufacturing and general industrial activity as the reduction in government bureaucracy allows Indonesia's lower cost provider of space and labour competitive advantages to once again be felt. Our property development business has a tremendously valuable land bank that has increased in value many fold and will continue to benefit from increased economic activities. And our resort operations business is well positioned to benefit from the domestic and international tourism boom taking place in Indonesia.

During the course of the year we successfully divested our investment in the Shanghai property development project at Lao Xi Men, for US$330 million. The proceeds were partly used to repay our 2016 bonds, with the balance being earmarked to repay our 2017 bonds as well as some of our 2018 obligations. Thus we have de-levered our balance sheet at the holding company level, and with the cash on hand will reduce our direct debts by another S$225 million by the end of 2017. However, our consolidated debt levels still look larger because of the growth in our Indomobil finance subsidiaries' balance sheets.

Although the automotive business segment posted weak results in 2016, we look forward to 2017 and 2018 when Nissan/Datsun are scheduled to launch 7 new or updated models that should lead to better results. We also started JV operations with Furukawa from Japan on a new car battery factory as well as with Shinhan Bank on the financing side. With the government's emphasis on infrastructure investment, and the rise in coal and palm oil prices, we are expecting better results from the trucks and heavy equipment businesses as well.

Our utilities business may still have revenue downside risk as new factories take time to come online, but we believe the long-term effects from our cost reduction exercises and increasing demand from resorts and hotels will ultimately yield better results. We also may look to leverage our domain expertise into new locations to help satisfy the country's shortage of quality utility infrastructure.

Our industrial parks' repurposing to add offshore marine, food and aviation clusters are well underway, and are expected to bear significant fruit in the 2018/2019 timeframe. We have seen the first investors coming in for each of these new clusters, and with the government de-bottlenecking of bureaucracy, we are expecting further upside in the cash flows from our industrial park assets.

The value of our property land bank is increasing. Our developments in Lagoi Bay are maturing, with 2 new hotels opening in 2016. This helped to draw over 675,000 visitors to see physical improvements such as the Bintan Crystal Lagoon, Lagoi Love Locks, Lagoi Lantern Park, Bintan Safari Park, Lagoi Ultralight Adventures, the Dulous Phos, in addition to such major international sporting events such as the Tour de Bintan, the Bintan Marathon, the Bintan Triathalon, the Bintan Spartan Challenge Race, the Bintan Ironman, and others. We also completed our first Batam property development project, Grand Summit, with the 74 high end landed properties sold. The second Batam project, The Home has already sold around half of its 273 homes. We have also increased our shareholding in our Batamindo Executive Village from 60% to 77.5%, which although requiring additional investments and licenses, has the potential to create more successful property development projects in the future.

Our resort operations business had a tougher year in 2016 as cumulative wear and tear on our ferry fleet caused some unforeseen repair expenses. But increasing visitor numbers going forward should increase load factors and bring us to profitability in the coming years.

Overall our company has weathered the weakness in the Indonesian economy the last few years, and is well positioned to take advantage of the expected recovery. We thank you for your continuing patience and look forward to a rewarding future together.


Mr Lim Hock San Mr Eugene Park
Non-Executive Chairman
Independent Director
Chief Executive Officer
Executive Director