Chairman's Message

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(extracted from Annual Report 2017)

Dear Shareholders,

2017 was a transformational year for Natural Cool.

Since the changes in the composition of our Board in early 2017, we have been working very hard with the management team to deliver value to shareholders. Given the relatively short period of time that the new Board has been in place, and looking at our results for the year, we can only say that our task is a "workin- progress".

Our Air-conditioning ("Aircon") Division performed well this year. Despite a small drop in revenue this year to S$110.0 million, we are pleased that the Aircon Division delivered better profitability than last year, showing our ability to protect our margins even in the face of stiff competition.

On the regionalisation front, and as promised last year, we are pleased to note that the Group has entered into a partnership to represent a major Japanese brand in several emerging ASEAN and South Asian markets. Although started in the fourth quarter of 2017, this new business unit has already shown very encouraging results.

On our digital strategy, we are happy to report the launch of our ecommerce website, and in 2018, we will be looking at new digital initiatives including a multi-industry Business to Consumer mobile platform that we will announce in due course.

Meanwhile, despite the best efforts by the new management who performed admirably, our Paint Division continues to struggle in very challenging market conditions and saddled with high gearing. It was with this situation in mind that we decided to bite the bullet and sell our property located at 38 Lok Yang Way in late 2017. Because the carrying value of this property is higher than its sale price, we have taken a one-time charge of S$1.7 million for the carrying value of this property and associated fittings and renovation to our profit and loss statement. We plan to relocate some of the functions of the Paint Division back to its factory premises in Malaysia, and we hope that this exercise will help the business regain its footing to profitability.

As regards to the internal investigation into certain irregular transactions at the Paint Division, we have completed this investigation and lodged reports with the relevant authorities. As promised last year, we will spare no efforts to protect our business and assets.

As for our investments, we are awaiting the outcome of the exploration efforts by our investee company, HMK Energy Pte Ltd. Currently, we believe that retaining our interest in HMK Energy will be in the best interest of our shareholders as the Company embarks on completing its exploration program.

On the corporate front, we have participated in a number of corporate social responsibility projects and sponsored public business forums to increase our visibility. We will also be publishing our first Sustainability Report this year.

With regards to High Court Case No. 1128/2016 (as announced by the Company on 30 October 2016), as this matter is still going through the due process in court, we have no significant updates to provide shareholders at this moment. We will of course, provide you with updates as soon as there are material developments.

In addition, the Company is also dealing with two claims - one filed by Nitto Kogyo Corporation that acquired our Switchgear Division way back in 2015 (as announced by the Company on 4 December 2017), and the second relate to our former Chief Corporate Officer who left us when the new Board was appointed (as announced by the Company on 9 March 2017). We want to assure everyone that the Board will work hard to resolve these issues in the interest of all our stakeholders and will provide updates in due course.

Appreciation and Welcome

As always, we are mindful that our success will not be possible without the support of all stakeholders including our customers, business partners, principals and employees. We hope you will continue to support our endeavours in the years to come.

Yours faithfully,

Goh Teck Sia
Non-Executive Director and Chairman
Tsng Joo Peng
Executive Director and
Chief Executive Officer

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